Intellectual Property

in the Information Society

Professor James Boyle

Spring 1999


 
 
 
 
 
 
 
 
 
 
 
 

 


Intellectual Property: The Law of the Information Society Professor James Boyle

 

Spring 1999

(These materials consist of edited versions of cases and other supplementary materials used in my intellectual property class. Users are free to reproduce for non-profit educational purposes.)


Table of Contents

I. Introduction to The Information Society: A Case Study

How does the world change when we begin to think of everything, from software competition to the structure of the human genome, as an information issue? What problems arise? How do our conceptions of both problems and solutions change? Which of the issues presented by the study of the human genome does intellectual property address, or even recognise?

The Human Genome Project

U.S. Constitution Art. I, § 8, cl. 8

James Boyle, A Politics of Intellectual Property (excerpt)

From Maps to Medicine: About the Human Genome Research Project (from the National Genome Research Institute)

The Human Genome Project: Under An International Ethical Microscope --Ethical, Legal and Social Implications (ELSI) Research (from the National Genome Research Institute)

II. Information Economics: What's Law Got to Do With It?

To understand intellectual property, one first has to understand the paradoxes inherent in the economics of information, which requires a certain amount of background reading, and then one has to understand the version of information economics that is fought out in the law.

James Boyle, "Information Economics" from "A Theory of Law and Information"

John Perry Barlow, Selling Wine Without Bottles

INTERNATIONAL NEWS SERVICE v. THE ASSOCIATED PRESS

III. Intellectual Property: Supplementary Cases

A.) Intellectual Property & the Constitution

TRADE-MARK CASES

SAN FRANCISCO ARTS & ATHLETICS

TEXAS, Petitioner v. Gregory Lee JOHNSON for oral argument click here

A copyright to the Flag of the United States

DALLAS COWBOYS CHEERLEADERS

Vanna WHITE

B.) Copyright, Competition and Cyberspace

West Publishing Co. I

West Publishing Co, II

LOTUS DEVELOPMENT CORPORATION, Plaintiff, Appellee, v. BORLAND INTERNATIONAL, INC

LOTUS DEVELOPMENT CORPORATION, petitioner, v. BORLAND INTERNATIONAL, INC (affirmed by an equally divided court).

MAI SYSTEMS CORPORATION,

EASTMAN KODAK

Fair Use -- Copyright & the 1st Amendment.

ACUFF-ROSE MUSIC, INC.

RELIGIOUS TECHNOLOGY CENTER, Plaintiff, v. Arnaldo Pagliarina LERMA

MICHIGAN DOCUMENT SERVICES (3 judge panel)

MICHIGAN DOCUMENT SERVICES, (en banc).

Fair Use -- Decompilation

SEGA ENTERPRISES LTD.

Direct & Contributory Infringement ­ OSP Liability

NETCOM ON-LINE COMMUNICATION SERVICES, INC.,
 
 
 



 

I. Introduction to The Information

Society: A Case Study

The Human Genome Project


[The Congress shall have power] "To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries;"

U.S. Constitution Art. I, § 8, cl. 8.

Whenever a copyright law is made or altered, then the idiots assemble.

Mark Twain


A Politics of Intellectual Property: Environmentalism For the Net?

James Boyle(1)

Introduction: This Article argues that we need a politics, or perhaps a political economy, of intellectual property. Using the controversy over copyright on the Net as a case-study and the history of the environmental movement as a comparison, it offers a couple of modest proposals about what such a politics might look like -- what theoretical ideas it might draw upon and what constituencies it might unite.


I

"Code is Code" - The Logic of the Information Relation

Everyone says that we are moving to an information age. Everyone says that the ownership and control of information is one of the most important forms of power in contemporary society. These ideas are so well-accepted, such cliches, that I can get away with saying them in a law review articlewithout footnote support. (For those blessedly unfamiliar with law reviews, this is a status given to only the most staggeringly obvious claims; the theory of evolution,(2) and the orbit of the earth around the sun,(3) probably would not qualify.)

Beyond the claim that the information society exists, however, there is surprisingly little theoretical work. Sadly for academics, the best social theorists of the information age are still science fiction writers and, in particular, cyberpunks -- the originators of the phrase "cyberspace" and the premier fantasists of the Net. If one wants to understand the information age, this is a good place to start.

Cyberpunk science fiction succeeded as a genre largely because it combined a particular plot aesthetic with a particular conceptual insight. The plot aesthetic was simple; the bad boy/film noir world of the romantic lowlife. When juxtaposed to the 2-dimensional priggishness of the normal science fiction hero, the cigarette smoking, drugged-out petty outlaws and mirror-shaded ninja-chicks of cyberpunk seemed rebellious, cynical and just, well, cool. The character-type is a familiar one; James Dean could easily have played the hero of Neuromancer.(4) The conceptual insight is not so familiar. Cyberpunk is built on the extrapolation of two principal technologies, computers and the Web on the one hand, and genetic engineering on the other. The theme of cyberpunk is that the information age means the homologisation of all forms of information -- whether genetic, electronic, or demographic. I grew up believing that genes had to do with biology, petri dishes and cells and that computers had to do with punch cards and magnetic disks. It would be hard to imagine two more disparate fields. In contrast cyberpunk sees only one issue ~ code ~ expressed in binary digits or the C's,G's, A's and T's on a gene map.


 II

Intellectual Property is the Legal Form of the Information Age

The cyberpunk writers also offer us a legal insight. The more one moves to a world in which the message, rather than the medium, is the focus of conceptual, and economic interest, the more central does intellectual property become. Intellectual property is the legal form of the information age. Like most property regimes, our intellectual property regime will be contentious, in distributional, ideological and efficiency terms. It will have effects on market power, economic concentration and social structure. Yet, right now, we have no politics of intellectual property -- in the way that we have a politics of the environment or of tax reform. We lack a conceptual map of issues, a rough working model of costs and benefits and a functioning coalition-politics of groups unified by common interest perceived in apparently diverse situations.

Why don't we have such a politics? One reason is that with a few exceptions, the mass media coverage of the information age has been focused firmly on "cyberporn" and its potential censorship. This is rather like thinking that the most important feature of the industrial revolution was that it allowed the mass-production -- and then the regulation -- of pornographic magazines. Given the magnitude of the changes occurring, and the relatively small differences between pornography on-line and pornography anywhere else, a more trivial emblematic concern would have been hard to find. It is intellectual property, not the regulation of cyber-smut, that provides the key to the distribution of wealth, power and access in the information society. The intellectual property regime could make -- or break -- the educational, political, scientific and cultural promise of the Net. Indeed, even if our only concern were censorship, it would be perverse to concentrate exclusively on the direct criminalisation of content by governments. The digital world gives new salience to private censorship -- the control by intellectual property holders of distribution of and access to information. The recent Scientology cases are only the most obvious manifestation of this tendency.(5)

The media were not the only ones to miss the boat. Lawyers and legal academics largely followed suit. With a few exceptions, lawyers have assumed that intellectual property was an esoteric and arcane field, something that was only interesting (and comprehensible) to practitioners in the field.(6) There is some question whether this attitude was ever defensible; it certainly is not now. In terms of ideology and rhetorical structure, no less than practical economic effect, intellectual property is the legal form of the information age. It is the locus of the most important decisions in information policy. It profoundly affects the distribution of political and economic power in the digital environment. It has impacts on issues ranging from education to free speech. The "value" protected(7)by intellectual property in the world economy is in the hundreds of billions of dollars and growing all the time.

There are structural reasons why these tendencies will continue. The first crucial aspect of the current information economy is the increasing homologisation of forms of information. Think of the many ways in which it now does not make sense to distinguish between electronic and genetic information -- any more than between red books or green books. Precisely because we conceive of them as (and have the capability to treat them as) information, both present the same issues of regulation -- privacy, access, public goods problems, and so on. As a result, they have literally begun to overlap -- think of the storing (and then the sale?) of the human genome on computer disk, or of the private gene databases which add value to information developed through publicly funded research and then demand patent options as the prerequisite for access by outsiders.(8)Read about the mathematical-biological/computer-science discipline of bio-informatics, a discipline which is premised on the belief that information is information, whether the medium is a double helix or an optical disk.(9)

We are now used to the idea that Microsoft retains rights over the lines of code sitting on computer hard drives around the world. We can even produce a utilitarian justification to explain why. It is a lot stranger to think that women all over the country may carry in their bodies a string of genetic information -- brca1, the so-called breast cancer gene -- that has been patented by Myriad Genetics or that the Commerce Department tried to patent the genes of a Guyami Indian woman who possessed an abnormal resistance to leukemia.(10) From the point of view of the information economy, though, the two cases are very similar; in each case, strings of code are subject to intellectual property rights granted in the belief that they will inspire further innovation and discovery. The fact that this can be done in the face of the profound shock most people feel at the ownership of human genes is a testament to the universalizing logic of the information relation. (Whether it is also a good thing is a different question.)

The process is not simply a legal one and the overlaps go in both directions. Scan the science pages and see articles about the possibility of using DNA sequences as incredibly powerful parallel processing "computers."(11)Think of the software designers who create electronic ecologies and then use those strings of computer code which have proved themselves as survivors -- harnessing a form of "natural" selection that Darwin would have recognised but could never have imagined.(12) Put it all together and then compare this "reality" to the way that we thought about computers on the one hand and biology on the other, just twenty years ago. In the international information economy, the medium is not the message. The medium is irrelevant.

The second crucial aspect of the information economy is a corollary of the homologisation of forms of information; the decreasing proportion of product cost and intellectual attention devoted to medium (diskettes, cell-lines) rather than message (software, decoded DNA sequences). A moment's thought will show that both of these aspects will give increased importance to intellectual property. Reconceiving new areas of science, commerce and research as "information issues" simply gives us more fields in which it is likely we will spy the public goods problems that intellectual property is supposed to solve. And the diminishing portion of product cost devoted to medium rather than message means that, within any given area, the public goods problems grow all the more salient; (The price of the program rises, at least relative to the falling price of the diskette onto which it can be copied.)

When I say that we lack a politics of intellectual property, I don't mean to imply that this is the only type of "information politics" -- more like the most neglected. Look at the recent past. From the net roots campaign against the Communications Decency Act to the titanic industry lobbying over the Telecommunication Bill in which the CDA was embedded, there have been many moments of political struggle and agitation over digital commerce and communications regulation.(13) There have been conferences, both Polyannish and despairing, over the use of the Net by non profit groups, and thoughtful warnings of the dangers posed by disparate access to information technologies. These are serious points; the issue of access in particular. But in most cases, they are isolated applications to a new technology of a familiar political worldview or calculation of self-interest. Libertarians don't want newspapers censored; their attitude to the Net is the same (though the interactive quality of the technology, and the proprietary feeling that novelty gives first adopters have certainly given more people a stake in the protection of the system.) Non-profit groups have to adjust to changes in communications technology, just like changes in tax law, or the regulation of lobbying. Communications conglomerates have an attitude towards bandwidth that seems indistinguishable from most commercial entities' attitude towards publicly held real estate; rationally enough, they want more, they want it free (ideally, they want it subsidised) and they want to be able to exploit it without strings. The left sees a resource with new importance -- access to information technology -- and makes about it the points that it makes about access to health care or education.(14) I don't mean to minimise these concerns, and certainly don't want to make the claim that they are somehow less fundamental than the ones I describe here. But I do think that, precisely because of their comfortable familiarity, they miss some of thedifferences in the politics of the information age, the ideas we have not thought about so often or so well.
 
 


National Genome Research Institute

From Maps to Medicine: About the Human Genome Research Project

(visited November 7, 1998) <http://www.nhgri.nih.gov/>
 
 

The Human Genome Project is an ambitious effort to understand the hereditary instructions that make each of us unique. The goal of this effort is to find the location of the 100,000 or so human genes and to read the entire genetic script, all 3 billion bits of information, by the year 2005.

Even before it is complete, the Human Genome Project promises to transform both biology and medicine. Our genes orchestrate the development of a single-celled egg into a fully formed adult. Genes influence not only what we look like but what diseases we may eventually get. Understanding the complete set of genes, known as the human genome, will shed light on the mysteries of how a baby develops. It also promises to usher in an era of molecular medicine, with precise new approaches to the diagnosis, treatment, and prevention of disease. In short, the international Human Genome Project, which involves hundreds of scientists worldwide, is an investigation of ourselves. Launched in 1990, the project is supported in the United States by the National Institutes of Health and the Department of Energy.

Our genes are made of DNA, a long, threadlike molecule coiled inside our cells. Within the cell nucleus, the DNA is packaged into 23 pairs of chromosomes. Each chromosome, in turn, carries thousands of genes arrayed like beads on a string. Genes, which are simply short segments of DNA, are packets of instructions that tell cells how to behave. They do so by specifying the instructions for making particular proteins. The hereditary instructions are written in a four-letter code, with each letter corresponding to one of the chemical constituents of DNA: A, G, C, T. Genes are, in essence, the "paragraphs" in this DNA language, with a certain sequence of As, Gs, Cs, and Ts constituting a recipe for a specific protein. If the DNA language becomes garbled or a word is misspelled, the cell may make the wrong protein, or too much or too little of the right one-- mistakes that often result in disease. In some cases, such as sickle cell anemia, just a single misplaced letter is sufficient to cause the disease.

Errors in our genes are responsible for an estimated 3000 to 4000 clearly hereditary diseases, including Huntington's disease, cystic fibrosis, neurofibromatosis, Duchenne muscular dystrophy, and many others. What's more, altered genes are now known to play a part in cancer, heart disease, diabetes, and many other common diseases. In these more common and complex disorders, genetic alterations increase a person's risk of developing that disorder. The disease itself results from the interaction of such genetic predispositions and environmental factors, including diet and lifestyle.

The Human Genome Project will develop tools to identify the genes involved in both rare and common diseases over the next 15 or 20 years. Such discoveries, in turn, are likely to bring improvements in the early detection and treatment of disease and new approaches to prevention. Once the molecular basis of a disease is revealed, scientists have a far better chance of defeating it. One approach is to design highly targeted drugs that act on the cause, not merely the symptoms, of disease. Another is to correct or replace the altered gene through gene therapy. Even before that, however, gene discovery can lead to predictive tests that can tell a person's likelihood of getting a disease long before symptoms appear. In some cases, preventive actions can then be undertaken that may avert the disease entirely or else detect it at its earliest stages, when treatment is more likely to be successful.

The Human Genome Project is designed to speed this process once and for all by providing new tools and techniques that will enable scientists to find genes quickly and efficiently. The first of these tools are maps of each chromosome. One type of map, called a genetic map, consists of thousands of landmarks--short, distinctive pieces of DNA--more or less evenly spaced along the chromosomes. Now very detailed, this map should enable researchers to pinpoint the location of a gene between any two markers. Another important step is to create what are called physical maps of each chromosome, a process that is also well under way. Physical maps consist of overlapping pieces of DNA spanning an entire chromosome. Once these maps are complete, investigators can localize a gene to a particular region of a chromosome by using a genetic map and then can simply go to the freezer, where the DNA for the physical map is stored, and pick out that piece to study rather than searching through the chromosomes all over again.

The ultimate goal of the Genome Project is to decode, letter by letter, the exact sequence of all 3 billion nucleotide bases that make up the human genome. It will be a daunting task. Before plunging into massive sequencing, researchers from numerous fields--biology, physics, engineering, and computer science, to name a few--are developing automated technologies to reduce the time and cost of sequencing. Once the human genome sequence is completed, attention can shift from the job of finding genes, which will then simply be a matter of scanning a computer database, to understanding them.

In its first 5 years alone, the Human Genome Project has already had a profound effect. Thanks to tools emerging from the project, the pace of gene discovery has nearly quadrupled. The gene involved in cystic fibrosis, the most common lethal hereditary disease among Caucasians, was identified in 1989; already, a diagnostic test is available to identify gene carriers among high-risk families, and the first human gene therapy efforts are under way in federally approved clinical trials. In early 1994, scientists discovered two genes involved in a hereditary form of colon cancer. An estimated 1 million Americans carry misspelled copies of these genes, which give them a 70% to 80% likelihood of developing colon cancer. Now that the genes are in hand, a simple blood test to detect those high-risk individuals is not far off. This test will open the door to preventive strategies that promise to greatly reduce deaths from this disease (see below).

The newfound ability to probe our genes, however, can be a double- edged sword. For some diseases, for instance, our ability to detect the nonfunctional gene has outpaced our ability to do anything about the disease it causes. Huntington disease is a case in point. Although a predictive test for high-risk families has been available for years, only a minority of these individuals has decided to be tested. The reason? There is no way to cure or prevent Huntington's disease, and some individuals would rather live the uncertainty than with the knowledge that they will be struck, sometime in midlife, with a fatal disease. And what might happen if a health insurance company or a potential employer learns that an individual is destined to develop Huntington disease--might that person be denied coverage or a job?

Because of such concerns, the Human Genome Project has, since its inception, devoted about 5% of its budget to research aimed at anticipating and resolving the ethical, legal, and social issues likely to arise from this research. This is one of the first times scientists have begun to explore the potential consequences of their research before a crisis had arisen. With careful attention to these ethical quandaries, and adequate safeguards when necessary, society can reap the full benefits of the Human Genome Project.


One of the most obvious questions about the investigation of human DNA, is how research will be paid for and advantageous therapies and drugs produced. One answer is intellectual property; specifically, patents over DNA sequences. But that answer produces its own problems; a kind of land-grab for the human genome. Consider the following quote from Science magazine.

" Not so long ago, recalls author Robert Cook-Deegan, a grant reviewer at the National Institutes of Health (NIH) dismissed the automated DNA sequencer as a $100,000 paperweight." That attitude is now dead and buried: Automated sequencers have not only gained respect, they've taken over like the sorcerer's apprentice, churning out a flood of high-quality genetic data. They. have also caused a revolution in biology, and, it seems, a crisis at the U.S. Patent and Trademark Office (PTO).

Last month, PTO Commissioner Bruce Lehman called for help, inviting outside experts to suggest ways of managing the flood of DNA sequences in new patent applications. While some academic researchers have been signing a pledge not to patent raw DNA sequences (Science, 26 April, p. 477), companies that specialize in sequencing DNA - chiefly Incyte Pharmaceuticals of Palo Alto, California, and Human Genome Sciences (HGS) of Rockville, Maryland - have been channeling data from their mechanized processes into the PTO at a torrential rate. Unless changes are made, PTO official John Doll projects it could take a single senior staffer more than 90 years to examine the DNA sequences already in the queue." Eliot Marshall, Patent Office Faces 90-year Backlog. (Patent Applications for DNA Sequences) Science Friday, May 3, 1996 Vol. 272, No. 5262, ISSN: 0036-8075, p. 643




National Genome Research Project

Ethical, Legal and Social Implications (ELSI) Research

TITLE: Goals and Related Research Questions and Education Activities for the Next Five Years of the U.S. Human Genome Project (visited November 30, 1998) <http://www.nhgri.nih.gov/98plan/elsi>

BODY: This document was prepared by the ELSI Research Planning and Evaluation Group (ERPEG)to illustrate more fully the breadth and complexity of the ELSI goals. Each goal statement is accompanied by examples of possible research questions and education activities. These examples are meant only to give a flavor of the possible issues to be addressed, and are not, in any sense, exhaustive or comprehensive.

        a. Examine the issues surrounding the completion of the human

DNA sequence and the study of human genetic variation. 


 
 Examples of Research Questions and Education Activities:

What strategies should be used to balance the needs for privacy and safety of individuals and groups with the scientific goals of creating resources for DNA sequencing and human variation research? (e.g. How should research participants be informed about the fact that they may not be able to remain anonymous given the availability of their DNA sequence?)

Will the discovery of DNA polymorphisms influence current concepts of race and ethnicity? (e.g. How will individuals and groups respond to potential challenges to or affirmations of their racial and/or ethnic self-identification, based on new genetic information?)
 
What new concerns are being raised by the commercialization and patenting of DNA sequence information in the public, academic and private sectors? (e.g. What are the implications of domestic and international policies for the ownership of DNA sequence information?)

What are the most effective strategies for educating health professionals, policy makers, the media, students, and the public regarding the interpretation and use of information about genetic variation?
b. Examine issues raised by the integration of genetic technologies and information into health care and public health activities.
Examples of Research Questions and Education Activities:
What are the clinical and societal implications of identifying common polymorphisms that predict disease susceptibility or resistance? (e.g. Will genetic testing promote risky behavior in persons found to be genetically resistant to particular pathogens, such as HIV, or environmental hazards, such as cigarette smoke?)
What are the potential risks and benefits of integrating genetic testing for complex diseases, behaviors, and other traits into health care? (e.g. What are the individual and social implications of developing pharmacologic treatments that are tailored to patients' genotypes?)
What are the most effective strategies for integrating genetic information and technologies into clinical settings in ways that help practitioners see health and disease in a genetic context and what will be the ethical, legal and social consequences of their increasing availability and use? (e.g. How will individuals be benefited or harmed by the integration of genetic information into individual medical records, managed care organization records, and public health registries?)
Will the availability of genetic information influence provider practice, change patient behavior, reduce morbidity and mortality, and/or reduce health care costs?
What factors influence: who develops and regulates new reproductive genetic technologies; which technologies are incorporated into medical practice; and which technologies are accepted or rejected by the public? (e.g. What issues may arise as a result of the development and use of germ-line gene therapies? How might the availability of these therapies affect concepts of disability?)
What are the best strategies for educating health care providers, patients and the general public about the use of genetic information and technologies? (e.g. What are the most effective mechanisms for educating providers, patients and the public about the uncertainties inherent in genetic risk information?)
c. Examine issues raised by the integration of knowledge about genomics and gene- environment interactions into non-clinical settings. Examples of Research Questions and Education Activities:
What are appropriate and inappropriate uses of genetic testing in the employment setting? (e.g. Are there conditions under which it might be ethical and/or legal to use genetic testing to identify those employees who may have a susceptibility to workplace hazards? What implications does the Americans with Disabilities Act have for such testing?)
What issues emerge from the collection, storage and use of blood and other tissue samples, including collections by the military, civil and criminal justice systems, commercial entities, and federal and state public health agencies?
What are the implications of obtaining genetic information for use in adoption proceedings and establishment of child custody and child support?
What are the implications of potential commercial applications resulting from the availability of genetic information about individuals and groups? (e.g. Should commercial companies have access to personal genetic data for targeted product marketing?)
What are the potential uses and abuses of genetic information in educational settings? (e.g. Is placement of students on the basis of genetic data any more or less beneficial or harmful than tracking on the basis of traditional categories or classifications?)
d. Explore ways in which new genetic knowledge may interact with a variety of philosophical, theological, and ethical perspectives. Examples of Research Questions and Education Activities:
Will continuing research in molecular biology and functional genomics affect how individuals and society view the relationship of humans to one another and to the rest of the living world? (e.g. As new genetic technologies and information provide additional support for the central role of evolution in shaping the human species, how will society accommodate the challenges that this may pose to traditional religious and cultural views of humanity?)
What are the implications of behavioral genetics for traditional notions of personal, social and legal responsibility? (e.g. What role will the discovery of putative genetic predispositions to violent behavior play in criminal prosecutions?)
What are the implications of genetic enhancement technologies for conceptions of humanity? (e.g. What ethical or theological challenges might be posed by the ability to alter the genetic makeup of future generations?)
e. Explore how socioeconomic factors and concepts of race and ethnicity influence the use and interpretation of genetic information, the utilization of genetic services, and the development of policy.
Examples of Research Questions and Education Activities:
How are individual views about the value of genetic research, the importance of access to genetic services, and the meaning and relevance of genetic information affected by concepts of race and ethnicity and by socioeconomic factors? (e.g. How have past misuses of genetic science and information influenced perceptions of genetic research and services among individuals from diverse communities and groups?)
How is the impact of genetic testing in clinical and non-clinical settings affected by concepts of race and ethnicity and other social or economic factors? (e.g. Will particular communities and groups be more vulnerable to employment discrimination based on genotype?)
In what ways are access to, and use of, genetic information and services affected by ethnicity, race, or socioeconomic status?
What are the most effective strategies to ensure that genetic counseling and other genetic services are culturally sensitive and relevant?
 
 

I. Introduction to the Information
 
 Society:

Information Economics
 


A Theory of Law and Information:

Copyright, Spleens, Blackmail and Insider Trading

(Excerpted, without notes -- for complete text, click here.)

James Boyle
Originally published in 80 Calif. L. Rev. 1413

IV

The Economics of Information

As usual, information has not one role, but many. The analytical structure of microeconomics includes the concept of "perfect" information-meaning free, complete, instantaneous, and universally available-as one of the defining features of the perfect market.(70)At the same time, the actual market structure of contemporary society depends on information being a commodity- costly, partial, and deliberately restricted in its availability. To put it briefly, perfect information is a defining conceptual element of the analytical structure used to analyze markets driven by the absence of information, in which imperfect information is actually a commodity.(71) If an analogy is needed, imagine a theology that postulates ubiquitous God-given manna-food from heaven-in its vision of the heavenly city, but otherwise assumes that virtue and hard work are both maximized under conditions of scarcity. Now use that theology as the basis for a practical discussion of the ethics of food shortages.(72)

This basic theoretical aporia(73)explains the weakness of much economic analysis of information regimes. My point is not that the reality is more complicated than the abstraction. That would be a critique of all abstractions, and abstractions are necessary to life. My claim is that information is a problem case for that specific set of abstractions we call economic theory, that it can and must be represented within the theory in two conflicting ways, and that certain concrete problems follow as a result. Some economists believe that these problems can be solved by changing the level of analysis- from perfect to imperfect markets, from imperfect information as commodity to imperfect information as transaction cost to perfect information as component of the analytical structure-just as Russell and Whitehead believed that they could banish paradoxes from mathematics by segregating the component parts of the paradox on different levels of analysis. Godel's Theorem convinced mathematicians of the impossibility of getting rid of this pattern of circularity, recursive definition, and self-swallowing analysis. Sadly, with some notable exceptions that I shall discuss in a moment, economists seem to have avoided any comparable moment of professional modesty.(74)

The first manifestation of this paradox in information economics is the fact that the requirements of "motivation" and those of "efficiency" seem contradictory.(75) For example, if markets are to be efficient, the prices must perfectly reflect available information. Yet information is costly to obtain. If prices perfectly reflect available information, with no part of the price going to the producer of the information, then there is no incentive to produce more information. To postulate efficiency in the production of information we must assume away the incentive necessary to produce. To postulate the incentive is to make efficiency impossible. It looks like a classic paradox. This is not an observation confined to those skeptical of information economics, some of the most sophisticated economists writing in the area have acknowledged this problem: "There is a fundamental conflict between the efficiency with which markets spread information and the incentives to acquire information."(76)Are property rights in information a transaction cost that impedes the full and efficient circulation of information? It might seem obvious that they are. After all, perfect information is one of the elements of the perfect market. If information can be commodified, then a host of transaction costs are introduced into information flow and a limited monopoly is granted in the midst of a system supposedly based on competition.(77)



Yet the picture changes when information is viewed not as an element within the theoretical structure of the economic system, but rather as a commodity produced and distributed according to the rules of that system. In fact, most economic analysis of information takes this "commodity perspective."(78) From that perspective, the goal of the analysis is to discover the level of property rights that will produce the optimal level of production. Take the classic case of International News Service v. Associated Press.(79)Associated Press (AP) operated a news-gathering service. An international network of correspondents and wire services provided news which was printed in the AP papers. Unfortunately for AP, International News Service (INS), which operated a far less expansive news-gathering apparatus, made a practice of free riding on AP's efforts. INS employees would gather news from AP's noticeboards and from early editions of its East Coast newspapers and would then reprint the news, often taking advantage of the time differential between the east and west coasts.

The INS case raises a difficult question for economic analysis. One line of rhetoric and analysis indicates that we should secure to producers the fruits of their labors, and thus induce them to produce more. Without some legally protected interest in the news it gathers, AP will presumably be under a competitive disadvantage. News will become a "public goods problem." Unable to exclude its competitors from the fruits of its efforts, AP will be driven to cut back its news-gathering activities-as will all the other newspapers. Thus, though consumers might be willing to pay for a higher level of news gathering, it will be impractical for any individual newspaper to provide such a service. Put this way, the majority's creation of a legally protected interest in freedom from unfair competition in news gathering is the perfect solution to the public goods problem. By allowing commodification, it ensures continued production and avoids the prisoner's dilemmas set up by the alternative regime.

Yet one cannot solve the problems of economic analysis merely by adopting the commodity perspective-leaving perfect competition and information efficiency concerns aside. The problem of the free flow of information reappears within the new model. For example, should we approach the question of "fair use" in copyright through the lens of the commodity perspective? If we do so, will we only tolerate limitations on intellectual property rights when those limitations are necessary to minimize transaction costs or accomplish well-defined public goals? The most sophisticated scholarly analysis takes this approach.(80) Consequently, it tries to preserve incentives for creators, even establishing a typology of "fair uses"-assigning or denying property rights in part according to whether those uses would tend to reduce the reward available to the author.(81)Yet the analysis largely ignores the opposite perspective, that of the efficient flow of information. If we switch the perspective, we see that one important purpose of "fair use" law is to make sure that future creators have available to them an adequate supply of raw materials. From this perspective, too many "incentives" could convert the public domain into a fallow landscape of private plots.

To their credit, some economic analysts have attempted to reconcile the two perspectives. Thus, for example, Landes and Posner describe copyright as constructed by the tension between the need to grant legally protected interests to authors in order to motivate them and the need to limit the rights of authors so as to allow future creators legal access to the raw materials they need.(82)This seems reasonable enough, but it also leaves them dangerously close to the mushy "balancing" analysis from which economics was supposed to provide surcease. At the same time, the aporiareappears in the question of classification within the theory. For instance, how are we to classify a telephone directory of agents and publishing houses or an index price measure in a futures market in books? Is the former-the information necessary to make the market run-something that should be freely available? Is the latter a commodity in which the creators must be able to claim a legitimate intellectual property right if we are to encourage continued production of information? Or is it exactly the other way around?(83)

My argument is not merely that analysts are concentrating too much on motivating creators and not enough on the free flow of information. I am claiming that a change in the focus of the analysis does not dispose of these difficulties; it merely reverses their "polarity." There are issues that economists tend to analyze by thinking of information as information rather than as a commodity-for example, the discussion of the efficient capital market hypothesis. Yet, as some economists have pointed out, unless the questions of commodification and incentive are worked into the analysis, the theory ends in paradox as soon as the slightest costs or imperfections are introduced into it. The best example comes from Grossman and Stiglitz's description of the self-destructing futures market.

[W]henever there are differences in beliefs that are not completely arbitraged, there is an incentive to create a market. (Grossman, 1977, analyzed a model of a storable commodity whose spot price did not reveal all information because of the presence of noise. Thus traders were left with differences in beliefs about the future price of the commodity. This led to the opening of a futures market. But then uninformed traders had two prices revealing information to them, implying the elimination of noise.) But, because differences in beliefs are themselves endogenous, arising out of expenditure on information and the informativeness of the price system, the creation of markets eliminates the differences of beliefs which gave rise to them, and thus causes those markets to disappear. . . .

Thus we could argue as soon as the assumptions of the conventional perfect capital markets model are modified to allow even a slight amount of information imperfection and a slight cost of information, the traditional theory becomes untenable....

. . . [B]ecause information is costly, prices cannot perfectly reflect the information which is available, since if it did, those who spent resources to obtain it would receive no compensation.(84)



Switching perspectives again, we might think that commodification is the answer. A futures market produces information-in the form of the price of futures contracts. We do not normally think of price as a public good, but it seems to fit all of the criteria. In this case, it is a valuable commodity that takes considerable effort to create and is available thereafter at a marginal cost near zero.(85) If we wish to eliminate the public goods problem, the answer might be to commodify the price measure-to assert an intellectual property right in the price output of the market-in order to prevent others from gaining free access to the information. Yet if there is one thing that microeconomics cannot justify treating as a public good, surely it is price.

If all of this seems like an Alice-in-Wonderland conclusion, it is worth considering the case of Board of Trade v. Dow Jones & Co.,(86)in which the court recognized that Dow Jones had a "proprietary interest in its indexes and averages which vests it with the exclusive right to license their use for trading in stock index futures contracts."(87)The court pointed out, however, that "[t]he extent of defendant's monopoly would be limited, for as defendant points out, there are an infinite number of stock market indexes which could be devised."(88)The Dow case does not go as far as the "secret stock market" I proposed half-jokingly, but it does exemplify the ineradicable tension between the notion of perfect information and frictionless markets and the notion of commodification and property rights.

This internal tension in the analysis always leaves open the question whether a particular issue is to be classed as a public goods problem for which the remedy is commodification,(89)or a monopoly of information problem for which the remedy is unfettered competition.(90) The problem of classification is not merely an empirical one. Even the existence of precise empirical evidence (of a kind currently unavailable for any area of information regulation except, arguably, stock market prices) would not, alone, reveal the right answer unless we had also decided on what level of generality the analysis was to be undertaken. In Feist Publications v. Rural Telephone Service Co.,(91) for example, the Supreme Court denied copyright protection to the compilers of a white pages phone directory. The logic of the analysis I just applied to the INS case might seem to indicate that it was necessary to give the compilers of the directory some protection. After all, directories raise classic public goods problems. The cost of creation is high, yet it is possible at minimal extra cost for additional users to enjoy the same unit of the good thus created. In other words, it is expensive to make and cheap to copy. The Court was not disposed to agree. Partly by means of doctrinal line- drawing (copyright rather than unfair competition) and partly by means of definitional fiat (telephone directories are not original, so in that sense nothing truly new is being created), the Court moved away from the "sweat of the brow" theory and denied the compilers copyright protection.

At first, it appears that the Feist opinion has nothing to tell us about economic analysis. On closer inspection, it becomes apparent that the Court was not so much rejecting the commodity perspective as it was changing the level of generality of the analysis. From Justice O'Connor's perspective, it was the structure of copyright law as a whole that strikes the right balance between the need to reward producers and the need to maintain competition and the free flow of information. Since copyright law as a whole allows the commodification of expression but not the ideas or facts which that expression contains, and since the Court finds this particular arrangement of facts to be "unoriginal," no legally protected interest can be recognized. It is only once this prior decision about the level of generality has been made that the questions of efficiency and incentive can intelligibly be posed.

For all of these reasons, economic analysis of information regimes is extraordinarily indeterminate. A person reading the confident statements of legal scholars about the superior efficiency of the patent regime over the copyright regime,(92) or the economic inefficiency of insider trading regulation(93)and of the law of fraud,(94) would be surprised to find that economists cannot agree over the basic question of whether, in the absence of commodification, there will be under- or over-investment in the production of information. Kenneth Arrow takes a position that seems to support the Court's result in INS. He argues that without property rights, too little information will be produced, because producers of information will not be able to capture its true value.(95)Fama and Laffer, on the other hand, argue that too much information will be generated, because some information will be produced only in order to gain a temporary advantage in trading, thus redistributing wealth but not achieving greater allocative efficiency.(96)In other words, in the absence of information property rights, there may be inefficient investment of social resources in activities that merely slice the pie up differently, rather than making it bigger. Hirshleifer gives a similar analysis of patent law, ending with the conclusion that patent law may be either a necessary incentive for the production of inventions or an unnecessary legal monopoly in information that overcompensates an inventor who has already had the opportunity to trade on the information implied by his or her discovery.(97)It is hard to think of a more fundamental uncertainty.(98)

It is my argument in this Article that much contemporary economic analysis conceals these tensions, aporias, and empirically unverifiable assumptions by relying unconsciously on the notion of the romantic author. I have tried to show that most issues in information economics could be portrayed (in the absence of more detailed empirical information) as either public goods problems for which the state has wisely chosen the remedy of commodification in order to avoid underproduction or as potential monopolies in which intolerable transaction costs are introduced into the free flow of information. In later Parts, I will argue that this choice is often concealed by an implicit reliance on the author notion, a reliance that tends to push the analysis towards the incentives/commodity vision of information. This could have serious negative consequences since it will lead analysts (and governments) to support a greater commodification of information than is actually warranted. Such a discourse could also be used cynically to protect existing information monopolies. Economists would be mainly concerned by the possible efficiency losses implicit in such a result. In the Conclusion, I argue that there are also profound distributional issues which should concern us-particularly if we believe that information is becoming one of the primary resources in the international economy.

So much for the theory. What about the facts? The empirical evidence, of which there is surprisingly little, seems to justify these conclusions, or at least to cast doubt on current assumptions about the level of international intellectual property protection necessary to promote research and innovation. A historical, statistical study of the effect of patent protection on the development of drugs in both developed and developing countries from 1950 to 1989 found:

[T]he existence of a patenting system is not a prerequisite for inventions.

. . . .

The relationship between patent systems and their influence on the inventive capacity of developed countries was also tested. Two different tests using Yule's coefficient showed conclusively that, for those countries in which nearly all inventions are made, the relationship is not significant.

. . .The hypothesis that the number of inventions would increase along with the world-wide increase in patent systems was also considered, but it was concluded that there is no significant relationship between these two variables, either in the United States or in the world at large.(99)

The certainty of these conclusions warrants some skepticism. A small correlation (Yule's association coefficient = 0.15) between patent protection and invention was observed in developed countries.(100)As the authors observe, there is a much more significant correlation between economic development and invention (Yule's association coefficient = 0.94).(101)Yet when the question is what level of intellectual property rights to maintain domestically, the latter correlation is of dubious relevance-at least for developed countries. On the other hand, the absence of a strong correlation between patent and invention is significant, and the study certainly tends to undermine the claims made by the developed world that a stronger international regime of intellectual property is necessary to encourage innovation.

Finally, while all such studies warrant methodological skepticism, the studies that support intellectual property protection seem even more problematic. One study estimated that without patent protection sixty-five percent of new drugs produced by the U.S. pharmaceutical industry would not have reached the market.(102) The analysis was based, however, on data supplied by the pharmaceutical industry in response to a questionnaire on the impact of patent protection on research and development. The problems with such a method are fairly obvious.

In another context, the paradoxes and empirical uncertainties of economic analysis might be of mainly theoretical interest. In discussions of information, they are of immediate practical relevance to almost every issue. In part this is because economists-to their great credit-have been in the forefront of attempts to treat information holistically.(103)Another reason may lie in the perception that information issues are somehow more "intangible." Escaping more easily from the absolutist, formalist, and physicalist notions of tangible property, information has historically seemed more amenable to a utilitarian calculus.(104)Consequently, these issues are often debated in economic terms-both inside and outside the academy. When the U.S. Trade Representative argued that the General Agreement on Trade and Tariffs (GATT) should be used to pressure other countries to increase their levels of intellectual property protection, she turned to the language of necessary economic incentives, rather than to the labor theory of property or the language of natural rights.(105)Once again, the simplistic claim arises that more protection of intellectual property means more innovation and invention.

There is another reason that economics shapes the debate of information issues. Neoclassical price theory is not only the most sophisticated utilitarian language available, but also the one whose disciplinary assumptions-consumer sovereignty, exogenous preferences, and so on-best reflect a liberal vision of the production, distribution, and exchange of information.(106)The "marketplace of ideas" is more than just a random metaphor: it is an accurate summation of many of the assumptions that our society brings to the discussion of information issues. In a moment, I will argue that this metaphor brings still more problems in its wake.

If microeconomics has become one of the most attractive languages in which to discuss questions of information, then it is almost inevitable that the specific blindnesses(107) of economic analysis will be replicated in information policy. Thus, to the particular difficulties of the economic analysis of information are added the more general difficulties of the economic analysis of law-baseline problems, wealth effects, and so on. These have been analyzed elsewhere, so I will not dwell on them here.

To sum up, there are at least two types of theoretical problems in microeconomic analysis of information. The first stems from the contradictory roles that information plays in the market and in microeconomic theory- information as both perfect and imperfect, property rights in information as both necessary incentives and dubious transaction costs, and so on. The second type of problem stems from the conflict between the assumptions of microeconomic analysis and actual social behavior. For example, when poor schoolchildren are convinced by relentless advertising and peer pressure that they "need" hugely expensive basketball shoes, even a staunch advocate of liberal economics may begin to doubt both the descriptive accuracy and prescriptive fairness of an unswerving application of the norms of "consumer sovereignty" and "exogenous preferences."(108)

What conclusions do we draw from the combination of these two theoretical problems? The pessimistic conclusion would be that one of the most influential ways we have to discuss issues of information is a theory so indeterminate that it frequently functions as a Rorschach blot for dominant social beliefs and the prejudices of the analyst. At the same time, this theory tends structurally to undervalue issues of power and inequality.

Call that the pessimistic conclusion. Is there an optimistic one? My answer would be a guarded "maybe." It is a good idea to focus on incentives to production, on transaction costs, and on the problems created by the presence or absence of legally protected interests. It is certainly a good idea to try to discover actual effects of a particular regime of information regulation. By and large, economists have not actually done this, but at least they have talked about it. The tendency of economic analysis to go at least one layer below reified doctrinal concepts is also to be welcomed. One could imagine a type of information economics that was sensitive to baseline errors, offer-asking problems, and wealth effects, that questioned the reality of exogenous preferences, and that openly acknowledged the tension between perfect information and "information as commodity." If this economics also paid more attention than is currently fashionable to the diminishing marginal utility of wealth, I, for one, would be pleased.

If all of these things were done, what epistemological status and practical effect would information economics have? It would be a little less imperial, a lot more modest, and much more empirical. Its conclusions would be more carefully hedged than they are now, and it would openly declare its partiality-the inherent prejudices of any utilitarian, efficiency, or welfare- maximizing calculus and the political consequences of the distinction between allocation and distribution.

To some, this judgment may seem strange in light of my claims that information economics is beset by a basic paradox or aporia. If the discipline is truly paradoxical, surely it is useless?-no matter how chastened its conclusions. The answer, I think, is that economics is only useless if one makes a particular positivist and scientistic set of assumptions about the kind of knowledge a theory has to provide in order to qualify as a theory. Admittedly, both professional economists and economic analysts of law-and not merely those from the Chicago school-sound in their more expansive moments as if they subscribe to those assumptions. But that is no reason for the rest of us to do so. Neoclassical price theory is a valuable tool which enriches our understanding of the world. Like all theoretical system it has blind spots and moments of formal "undecidability." Used with an awareness of its paradoxes and its blind spots, an awareness of the unconscious process of interpretive construction that conceals its indeterminacy, it would nevertheless be a valuable theoretical tool. Seen this way, economics would be a spur to concentrate on incentives and information flow, to worry about perverse motivations and unintended consequences. It would, in short, be more a rough- and-ready set of analytical techniques and reminders than a Newtonian science.

Whether or not this is the economics we should have, it is not the economics we have at the moment. With a few significant exceptions, we have an economics more like my pessimistic picture-an aporetic discipline which, as I hope to show in the rest of this Article, often conceals its indeterminacy through romance. To understand the origins of that romance, we must first look at the liberal conception of property...... END Of EXCERPT  


Selling Wine Without Bottles

The Economy of Mind on the Global Net

by John Perry Barlow"
If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of everyone, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density at any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property."
--Thomas Jefferson
 
 

Throughout the time I've been groping around Cyberspace, there has remained unsolved an immense conundrum which seems to be at the root of nearly every legal, ethical, governmental, and social vexation to be found in the Virtual World. I refer to the problem of digitized property.

The riddle is this: if our property can be infinitely reproduced and instantaneously distributed all over the planet without cost, without our knowledge, without its even leaving our possession, how can we protect it? How are we going to get paid for the work we do with our minds? And, if we can't get paid, what will assure the continued creation and distribution of such work?

Since we don't have a solution to what is a profoundly new kind of challenge, and are apparently unable to delay the galloping digitization of everything not obstinately physical, we are sailing into the future on a sinking ship.

This vessel, the accumulated canon of copyright and patent law, was developed to convey forms and methods of expression entirely different from the vaporous cargo it is now being asked to carry. It is leaking as much from within as without.

Legal efforts to keep the old boat floating are taking three forms: a frenzy of deck chair rearrangement, stern warnings to the passengers that if she goes down, they will face harsh criminal penalties, and serene, glassy-eyed denial.

Intellectual property law cannot be patched, retrofitted, or expanded to contain the gasses of digitized expression any more than real estate law might be revised to cover the allocation of broadcasting spectrum. (Which, in fact, rather resembles what is being attempted here.) We will need to develop an entirely new set of methods as befits this entirely new set of circumstances.

Most of the people who actually create soft property--the programmers, hackers, and Net surfers--already know this. Unfortunately, neither the companies they work for nor the lawyers these companies hire have enough direct experience with immaterial goods to understand why they are so problematic. They are proceeding as though the old laws can somehow be made to work, either by grotesque expansion or by force. They are wrong.

The source of this conundrum is as simple as its solution is complex. Digital technology is detaching information from the physical plane, where property law of all sorts has always found definition.

Throughout the history of copyrights and patents, the proprietary assertions of thinkers have been focused not on their ideas but on the expression of those ideas. The ideas themselves, as well as facts about the phenomena of the world, were considered to be the collective property of humanity. One could claim franchise, in the case of copyright, on the precise turn of phrase used to convey a particular idea or the order in which facts were presented.

The point at which this franchise was imposed was that moment when the "word became flesh" by departing the mind of its originator and entering some physical object, whether book or widget. The subsequent arrival of other commercial media besides books didn't alter the legal importance of this moment. Law protected expression and, with few (and recent) exceptions, to express was to make physical.

Protecting physical expression had the force of convenience on its side. Copyright worked well because, Gutenberg notwithstanding, it was hard to make a book. Furthermore, books froze their contents into a condition which was as challenging to alter as it was to reproduce. Counterfeiting or distributing counterfeit volumes were obvious and visible activities, easy enough to catch somebody in the act of doing. Finally, unlike unbounded words or images, books had material surfaces to which one could attach copyright notices, publisher's marques, and price tags.

Mental to physical conversion was even more central to patent. A patent, until recently, was either a description of the form into which materials were to be rendered in the service of some purpose or a description of the process by which rendition occurred. In either case, the conceptual heart of patent was the material result. If no purposeful object could be rendered due to some material limitation, the patent was rejected. Neither a Klein bottle nor a shovel made of silk could be patented. It had to be a thing and the thing had to work.

Thus the rights of invention and authorship adhered to activities in the physical world. One didn't get paid for ideas but for the ability to deliver them into reality. For all practical purposes, the value was in the conveyance and not the thought conveyed.

In other words, the bottle was protected, not the wine.

Now, as information enters Cyberspace, the native home of Mind, these bottles are vanishing. With the advent of digitization, it is now possible to replace all previous information storage forms with one meta-bottle: complex--and highly liquid--patterns of ones and zeros.

Even the physical/digital bottles to which we've become accustomed, floppy disks, CD-ROM's, and other discrete, shrink-wrappable bit-packages, will disappear as all computers jack in to the global Net. While the Internet may never include every single CPU on the planet, it is more than doubling every year and can be expected to become the principal medium of information conveyance if, eventually, the only one.

Once that has happened, all the goods of the Information Age--all of the expressions once contained in books or film strips or records or newsletters--will exist either as pure thought or something very much like thought: voltage conditions darting around the Net at the speed of light, in conditions which one might behold in effect, as glowing pixels or transmitted sounds, but never touch or claim to "own" in the old sense of the word.

Some might argue that information will still require some physical manifestation, such as its magnetic existence on the titanic hard disks of distant servers, but these are bottles which have no macroscopically discrete or personally meaningful form.

Some will also argue that we have been dealing with unbottled expression since the advent of radio, and they would be right. But for most of the history of broadcast, there was no convenient way to capture soft goods from the electromagnetic ether and reproduce them in anything like the quality available in commercial packages. Only recently has this changed and little has been done legally or technically to address the change.

Generally, the issue of consumer payment for broadcast products was irrelevant. The consumers themselves were the product. Broadcast media were supported either by selling the attention of their audience to advertisers, using government to assess payment through taxes, or the whining mendicancy of annual donor drives.

All of the broadcast support models are flawed. Support either by advertisers or government has almost invariably tainted the purity of the goods delivered. Besides, direct marketing is gradually killing the advertiser support model anyway.

Broadcast media gave us a another payment method for a virtual product in the royalties which broadcasters pay songwriters through such organizations as ASCAP and BMI. But, as a member of ASCAP, I can assure you this is not a model which we should emulate. The monitoring methods are wildly approximate. There is no parallel system of accounting in the revenue stream. It doesn't really work. Honest.

In any case, without our old methods of physically defining the expression of ideas, and in the absence of successful new models for non-physical transaction, we simply don't know how to assure reliable payment for mental works. To make matters worse, this comes at a time when the human mind is replacing sunlight and mineral deposits as the principal source of new wealth.

Furthermore, the increasing difficulty of enforcing existing copyright and patent laws is already placing in peril the ultimate source of intellectual property, the free exchange of ideas.

That is, when the primary articles of commerce in a society look so much like speech as to be indistinguishable from it, and when the traditional methods of protecting their ownership have become ineffectual, attempting to fix the problem with broader and more vigorous enforcement will inevitably threaten freedom of speech.

The greatest constraint on your future liberties may come not from government but from corporate legal departments laboring to protect by force what can no longer be protected by practical efficiency or general social consent.

Furthermore, when Jefferson and his fellow creatures of The Enlightenment designed the system which became American copyright law, their primary objective was assuring the widespread distribution of thought, not profit. Profit was the fuel which would carry ideas into the libraries and minds of their new republic. Libraries would purchase books, thus rewarding the authors for their work in assembling ideas, which otherwise "incapable of confinement" would then become freely available to the public. But what is the role of libraries in the absense of books? How does society now pay for the distribution of ideas if not by charging for the ideas themselves?

Additionally complicating the matter is the fact that along with the physical bottles in which intellectual property protection has resided, digital technology is also erasing the legal jurisdictions of the physical world, and replacing them with the unbounded and perhaps permanently lawless seas of Cyberspace.

In Cyberspace, there are not only no national or local boundaries to contain the scene of a crime and determine the method of its prosecution, there are no clear cultural agreements on what a crime might be. Unresolved and basic differences between European and Asian cultural assumptions about intellectual property can only be exacerbated in a region where many transactions are taking place in both hemispheres and yet, somehow, in neither.

Even in the most local of digital conditions, jurisdiction and responsibility are hard to assess. A group of music publishers filed suit against Compuserve this fall for it having allowed its users to upload musical compositions into areas where other users might get them. But since Compuserve cannot practically exercise much control over the flood of bits which pass between its subscribers, it probably shouldn't be held responsible for unlawfully "publishing" these works.

Notions of property, value, ownership, and the nature of wealth itself are changing more fundamentally than at any time since the Sumerians first poked cuneiform into wet clay and called it stored grain. Only a very few people are aware of the enormity of this shift and fewer of them are lawyers or public officials.
 
 
 

Those who do see these changes must prepare responses for the legal and social confusion which will erupt as efforts to protect new forms of property with old methods become more obviously futile, and, as a consequence, more adamant.

>From Swords to Writs to Bits
 
 

Humanity now seems bent on creating a world economy primarily based on goods which take no material form. In doing so, we may be eliminating any predictable connection between creators and a fair reward for the utility or pleasure others may find in their works.

Without that connection, and without a fundamental change in consciousness to accommodate its loss, we are building our future on furor, litigation, and institutionalized evasion of payment except in response to raw force. We may return to the Bad Old Days of property.

Throughout the darker parts of human history, the possession and distribution of property was a largely military matter. "Ownership" was assured those with the nastiest tools, whether fists or armies, and the most resolute will to use them. Property was the divine right of thugs.

By the turn of the First Millennium A.D., the emergence of merchant classes and landed gentry forced the development of ethical understandings for the resolution of property disputes. In the late Middle Ages, enlightened rulers like England's Henry II began to codify this unwritten "common law" into recorded canons. These laws were local, but this didn't matter much as they were primarily directed at real estate, a form of property which is local by definition. And which, as the name implied, was very real.

This continued to be the case as long as the origin of wealth was agricultural, but with dawning of the Industrial Revolution, humanity began to focus as much on means as ends. Tools acquired a new social value and, thanks to their own development, it became possible to duplicate and distribute them in quantity.

To encourage their invention, copyright and patent law were developed in most western countries. These laws were devoted to the delicate task of getting mental creations into the world where they could be used--and enter the minds of others--while assuring their inventors compensation for the value of their use. And, as previously stated, the systems of both law and practice which grew up around that task were based on physical expression.

Since it is now possible to convey ideas from one mind to another without ever making them physical, we are now claiming to own ideas themselves and not merely their expression. And since it is likewise now possible to create useful tools which never take physical form. we have taken to patenting abstractions, sequences of virtual events, and mathematical formulae--the most un-real estate imaginable.

In certain areas, this leaves rights of ownership in such an ambiguous condition that once again property adheres to those who can muster the largest armies. The only difference is that this time the armies consist of lawyers.

Threatening their opponents with the endless Purgatory of litigation, over which some might prefer death itself, they assert claim to any thought which might have entered another cranium within the collective body of the corporations they serve. They act as though these ideas appeared in splendid detachment from all previous human thought. And they pretend that thinking about a product is somehow as good as manufacturing, distributing, and selling it.

What was previously considered a common human resource, distributed among the minds and libraries of the world, as well as the phenomena of nature herself, is now being fenced and deeded. It is as though a new class of enterprise had arisen which claimed to own air and water.

What is to be done? While there is a certain grim fun to be had in it, dancing on the grave of copyright and patent will solve little, especially when so few are willing to admit that the occupant of this grave is even deceased and are trying to up by force what can no longer be upheld by popular consent.

The legalists, desperate over their slipping grip, are vigorously trying to extend it. Indeed, the United States and other proponants of GATT are making are making adherance to to our moribund systems of intellectual property protection a condition of membership in the marketplace of nations. For example, China will be denied Most Favored nation trading status unless they agree to uphold a set of cuturally alien principles which are no longer even sensibly applicable in their country of origin.

In a more perfect world, we'd be wise to declare a moratorium on litigation, legislation, and international treaties in this area until we had a clearer sense of the terms and conditions of enterprise in Cyberspace. Ideally, laws ratify already developed social consensus. They are less the Social Contract itself than a series of memoranda expressing a collective intent which has emerged out of many millions of human interactions.

Humans have not inhabited Cyberspace long enough or in sufficient diversity to have developed a Social Contract which conforms to the strange new conditions of that world. Laws developed prior to consensus usually serve the already established few who can get them passed and not society as a whole.

To the extent that either law or established social practice exists in this area, they are already in dangerous disagreement. The laws regarding unlicensed reproduction of commercial software are clear and stern...and rarely observed. Software piracy laws are so practically unenforceable and breaking them has become so socially acceptable that only a thin minority appears compelled, either by fear or conscience, to obey them.

I sometimes give speeches on this subject, and I always ask how many people in the audience can honestly claim to have no unauthorized software on their hard disks. I've never seen more than ten percent of the hands go up.

Whenever there is such profound divergence between the law and social practice, it is not society that adapts. And, against the swift tide of custom, the Software Publishers' current practice of hanging a few visible scapegoats is so obviously capricious as to only further diminish respect for the law.

Part of the widespread popular disregard for commercial software copyrights stems from a legislative failure to understand the conditions into which it was inserted. To assume that systems of law based in the physical world will serve in an environment which is as fundamentally different as Cyberspace is a folly for which everyone doing business in the future will pay.

As I will discuss in the next segment, unbounded intellectual property is very different from physical property and can no longer be protected as though these differences did not exist. For example, if we continue to assume that value is based on scarcity, as it is with regard to physical objects, we will create laws which are precisely contrary to the nature of information, which may, in many cases, increase in value with distribution.

The large, legally risk-averse institutions most likely to play by the old rules will suffer for their compliance. The more lawyers, guns, and money they invest in either protecting their rights or subverting those of their opponents, the more commercial competition will resemble the Kwakiutl Potlatch Ceremony, in which adversaries competed by destroying their own possessions. Their ability to produce new technology will simply grind to a halt as every move they make drives them deeper into a tar pit of courtroom warfare.

Faith in law will not be an effective strategy for high tech companies. Law adapts by continuous increments and at a pace second only to geology in its stateliness. Technology advances in the lunging jerks, like the punctuation of biological evolution grotesquely accelerated. Real world conditions will continue to change at a blinding pace, and the law will get further behind, more profoundly confused. This mismatch is permanent.

Promising economies based on purely digital products will either be born in a state of paralysis, as appears to be the case with multimedia, or continue in a brave and willful refusal by their owners to play the ownership game at all.

In the United States one can already see a parallel economy developing, mostly among small fast moving enterprises who protect their ideas by gettin g into the marketplace quicker then their larger competitors who base their protection on fear and litigation.

Perhaps those who are part of the problem will simply quarantine themselves in court while those who are part of the solution will create a new society based, at first, on piracy and freebooting. It may well be that when the current system of intellectual property law has collapsed, as seems inevitable, that no new legal structure will arise in its place.

But something will happen. After all, people do business. When a currency becomes meaningless, business is done in barter. When societies develop outside the law, they develop their own unwritten codes, practices, and ethical systems. While technology may undo law, technology offers methods for restoring creative rights.

A Taxonomy of Information
 
 
 
 

It seems to me that the most productive thing to do now is to look hard into the true nature of what we're trying to protect. How much do we really know about information and its natural behaviors?

What are the essential characteristics of unbounded creation? How does it differ from previous forms of property? How many of our assumptions about it have actually been about its containers rather than their mysterious contents? What are its different species and how does each of them lend itself to control? What technologies will be useful in creating new virtual bottles to replace the old physical ones?
 
 

Of course, information is, by its nature, intangible and hard to define. Like other such deep phenomena as light or matter, it is a natural host to paradox. And as it is most helpful to understand light as being both a particle and a wave, an understanding of information may emerge in the abstract congruence of its several different properties which might be described by the following three statements:

Information is an activity.

Information is a life form.

Information is a relationship.

In the following section, I will examine each of these.
 
 

I. INFORMATION IS AN ACTIVITY

Information Is a Verb, Not a Noun.

Freed of its containers, information is obviously not a thing. In fact, it is something which happens in the field of interaction between minds or objects or other pieces of information.

Gregory Bateson, expanding on the information theory of Claude Shannon, said, "Information is a difference which makes a difference." Thus, information only really exists in the É [delta]. The making of that difference is an activity within a relationship. Information is an action which occupies time rather than a state of being which occupies physical space, as is the case with hard goods. It is the pitch, not the baseball, the dance, not the dancer.
 
 

Information Is Experienced, Not Possessed

Even when it has been encapsulated in some static form like a book or a hard disk, information is still something which happens to you as you mentally decompress it from its storage code. But, whether it's running at gigabits per second or words per minute, the actual decoding is a process which must be performed by and upon a mind, a process which must take place in time.

There was a cartoon in the Bulletin of Atomic Scientists a few years ago which illustrated this point beautifully. In the drawing, a holdup man trains his gun on the sort of bespectacled fellow you'd figure might have a lot of information stored in his head. "Quick," orders the bandit, "Give me all your ideas."

Information Has To Move

Sharks are said to die of suffocation if they stop swimming, and the same is nearly true of information. Information which isn't moving ceases to exist as anything but potential...at least until it is allowed to move again. For this reason, the practice of information hoarding, common in bureaucracies, is an especially wrong-headed artifact of physically-based value systems.
 
 

Information is Conveyed by Propagation, Not Distribution

The way in which information spreads is also very different from the distribution of physical goods. It moves more like something from nature than from a factory. It can concatenate like falling dominos or grow in the usual fractal lattice, like frost spreading on a window, but it cannot be shipped around like widgets, except to the extent that it can be contained in them. It doesn't simply move on. It leaves a trail of itself everywhere it's been.

The central economic distinction between information and physical property is the ability of information to be transferred without leaving the possession of the original owner. If I sell you my horse, I can't ride him after that. If I sell you what I know, we both know it.
 
 

II. INFORMATION IS A LIFE FORM

Information wants to be free.

Stewart Brand is generally credited with this elegant statement of the obvious, recognizing both the natural desire of secrets to be told and the fact that they might be capable of possessing something like a "desire" in the first place.

English Biologist and Philosopher Richard Dawkins proposed the idea of "memes," self-replicating, patterns of information which propagate themselves across the ecologies of mind, saying they were like life forms.

I believe they are life forms in every respect but a basis in the carbon atom. They self-reproduce, they interact with their surroundings and adapt to them, they mutate, they persist. Like any other life form they evolve to fill the possibility spaces of their local environments, which are, in this case the surrounding belief systems and cultures of their hosts, namely, us.

Indeed, the sociobiologists like Dawkins make a plausible case that carbon-based life forms are information as well, that, as the chicken is an egg's way of making another egg, the entire biological spectacle is just the DNA molecule's means of copying out more information strings exactly like itself.
 
 

Information Replicates into the Cracks of Possibility

Like DNA helices, ideas are relentless expansionists, always seeking new opportunities for lebensraum. And, as in carbon-based nature, the more robust organisms are extremely adept at finding new places to live. Thus, just as the common housefly has insinuated itself into practically every ecosystem on the planet, so has the meme of "life after death" found a niche in most minds, or psycho-ecologies.

The more universally resonant an idea or image or song , the more minds it will enter and remain within. Trying to stop the spread of a really robust piece of information is about as easy as keeping killer bees South of the Border. The stuff just leaks.
 
 

Information Wants To Change

If ideas and other interactive patterns of information are indeed life forms, they can be expected to evolve constantly into forms which will be more perfectly adapted to their surroundings. And, as we see, they are doing this all the time.

But for a long time, our static media, whether carvings in stone, ink on paper, or dye on celluloid, have strongly resisted the evolutionary impulse, exalting as a consequence the author's ability to determine the finished product. But, as in an oral tradition, digitized information has no "final cut."

Digital information, unconstrained by packaging, is a continuing process more like the metamorphosing tales of prehistory than anything which will fit in shrink wrap. From the Neolithic to Gutenberg, information was passed on, mouth to ear, changing with every re-telling (or re-singing). The stories which once shaped our sense of the world didn't have authoritative versions. They adapted to each culture in which they found themselves being told.

Because there was never a moment when the story was frozen in print, the so-called "moral" right of storytellers to keep the tale their own was neither protected nor recognized. The story simply passed through each of them on its way to the next, where it would assume a different form. As we return to continuous information, we can expect the importance of authorship to diminish. Creative people may have to renew their acquaintance with humility.

But our system of copyright makes no accomodation whatever for expressions which don't at some point become "fixed" nor for cultural expressions which lack a specific author or inventor.

Jazz improvizations, standup comedy routines, mime performances, developing monologues, and unrecorded broadcast transmissions all lack the Constitutional requirement of fixation as a "writing". Without being fixed by a point of publicatoin the liquid works of the future will all look more like these continuously adapting and changing forms and will therefore exist beyond the reach of copyright.

Copyright expert Pamela Samuelson tells of having attended a conference last year convened around the fact that Western countries may legally appropriate the music, designs, and biomedical lore of aboriginal people without compensation to their tribe of origin since that tribe is not an "author" or "inventor."

But soon most information will be generated collaboratively by the cyber-tribal hunter-gatherers of Cyberspace. Our arrogant legal dismissal of the rights of "primitives" will be back to haunt us soon.

Information is Perishable

With the exception of the rare classic, most information is like farm produce. Its quality degrades rapidly both over time and in distance from the source of production. But even here, value is highly subjective and conditional. Yesterday's papers are quite valuable to the historian. In fact, the older they are, the more valuable they become. On the other hand, a commodities broker might consider news of an event which is more than an hour old to have lost any relevance.

III. INFORMATION IS A RELATIONSHIP

Meaning Has Value and Is Unique to Each Case

In most cases, we assign value to information based on its meaningfulness. The place where information dwells, the holy moment where transmission becomes reception, is a region which has many shifting characteristics and flavors depending on the relationship of sender and receiver, the depth of their interactivity.

Each such relationship is unique. Even in cases where the sender is a broadcast medium, and no response is returned, the receiver is hardly passive. Receiving information is often as creative an act as generating it.

The value of what is sent depends entirely on the extent to which each individual receiver has the receptors...shared terminology, attention, interest, language, paradigm...necessary to render what is received meaningful.

Understanding is a critical element increasingly overlooked in the effort to turn information into a commodity. Data may be any set of facts, useful or not, intelligible or inscrutable, germane or irrelevant. Computers can crank out new data all night long without human help, and the results may be offered for sale as information. They may or may not actually be so. Only a human being can recognize the meaning which separates information from data.

In fact, information, in the economic sense of the word, consists of data which have been passed through a particular human mind and found meaningful within that mental context. One fella's information is all just data to someone else. If you're an anthropologist, my detailed charts of Tasaday kinship patterns might be critical information to you. If you're a banker from Hong Kong, they might barely seem to be data.
 
 

Familiarity Has More Value Than Scarcity,

With physical goods, there is a direct correlation between scarcity and value. Gold is more valuable than wheat, even though you can't eat it. While this is not always the case, the situation with information is usually precisely the reverse. Most soft goods increase in value as they become more common. Familiarity is an important asset in the world of information. It may often be the case that the best thing you can do to raise the demand for your product is to give it away.

While this has not always worked with shareware, it could be argued that there is a connection between the extent to which commercial software is pirated and the amount which gets sold. Broadly pirated software, such as Lotus 1-2-3 or WordPerfect, becomes a standard and benefits from Law of Increasing Returns based on familiarity.

In regard to my own soft product, rock and roll songs, there is no question that the band I write them for, the Grateful Dead, has increased its popularity enormously by giving them away. We have been letting people tape our concerts since the early seventies, but instead of reducing the demand for our product, we are now the largest concert draw in America, a fact which is at least in part attributable to the popularity generated by those tapes.

True, I don't get any royalties on the millions of copies of my songs which have been extracted from concerts, but I see no reason to complain. The fact is, no one but the Grateful Dead can perform a Grateful Dead song, so if you want the experience and not its thin projection, you have to buy a ticket from us. In other words, our intellectual property protection derives from our being the only real-time source of it.

Exclusivity Has Value

The problem with a model which turns the physical scarcity/value ratio on its head is that sometimes the value of information is very much based on its scarcity. Exclusive possession of certain facts makes them more useful. If everyone knows about conditions which might drive a stock price up, the information is valueless.

But again, the critical factor is usually time. It doesn't matter if this kind of information eventually becomes ubiquitous. What matters is being among the first who possess it and act on it. While potent secrets usually don't stay secret, they may remain so long enough to advance the cause of their original holders.

Point of View and Authority Have Value

In a world of floating realities and contradictory maps, rewards will accrue to those commentators whose maps seem to fit their territory snugly, based on their ability to yield predictable results for those who use them.

In aesthetic information, whether poetry or rock 'n' roll, people are willing to buy the new product of an artist, sight-unseen, based on their having been delivered a pleasurable experience by previous work.

Reality is an edit. People are willing to pay for the authority of those editors whose filtering point of view seems to fit best. And again, point of view is an asset which cannot be stolen or duplicated. No one but Esther Dyson sees the world as she does and the handsome fee she charges for her newsletter is actually for the privilege of looking at the world through her unique eyes.
 
 

Time Replaces Space

In the physical world, value depends heavily on possession, or proximity in space. One owns that material which falls inside certain dimensional boundaries and the ability to act directly, exclusively, and as one wishes upon what falls inside those boundaries is the principal right of ownership. And of course there is the relationship between value and scarcity, a limitation in space.

In the virtual world, proximity in time is a value determinant. An informational product is generally more valuable the closer the purchaser can place himself to the moment of its expression, a limitation in time. Many kinds of information degrade rapidly with either time or reproduction. Relevance fades as the territory they map changes. Noise is introduced and bandwidth lost with passage away from the point where the information is first produced.

Thus, listening to a Grateful Dead tape is hardly the same experience as attending a Grateful Dead concert. The closer one can get to the headwaters of an informational stream, the better his changes of finding an accurate picture of reality in it. In an era of easy reproduction, the informational abstractions of popular experiences will propagate out from their source moments to reach anyone who's interested. But it's easy enough to restrict the real experience of the desirable event, whether knock-out punch or guitar lick, to those willing to pay for being there.

The Protection of Execution

In the hick town I come from, they don't give you much credit for just having ideas. You are judged by what you can make of them. As things continue to speed up, I think we see that execution is the best protection for those designs which become physical products. Or, as Steve Jobs once put it, "Real artists ship." The big winner is usually the one who gets to the market first (and with enough organizational force to keep the lead).

But, as we become fixated upon information commerce, many of us seem to think that originality alone is sufficient to convey value, deserving, with the right legal assurances, of a steady wage. In fact, the best way to protect intellectual property is to act on it. It's not enough to invent and patent, one has to innovate as well. Someone claims to have patented the microprocessor before Intel. Maybe so. If he'd actually started shipping microprocessors before Intel, his claim would seem far less spurious.
 
 

Information as Its Own Reward

It is now a commonplace to say that money is information. With the exception of Krugerands, crumpled cab-fare, and the contents of those suit-cases which drug lords are reputed to carry, most of the money in the informatized world is in ones and zeros. The global money supply sloshes around the Net, as fluid as weather. It is also obvious, as I have discussed, that information has become as fundamental to the creation of modern wealth as land and sunlight once were.

What is less obvious is the extent to which information is acquiring intrinsic value, not as a means to acquisition but as the object to be acquired. I suppose this has always been less explicitly the case. In politics and academia, potency and information have always been closely related.

However, as we increasingly buy information with money, we begin to see that buying information with other information is simple economic exchange without the necessity of converting the product into and out of currency. This is somewhat challenging for those who like clean accounting, since, information theory aside, informational exchange rates are too squishy to quantify to the decimal point.

Nevertheless, most of what a middle class American purchases has little to do with survival. We buy beauty, prestige, experience, education, and all the obscure pleasures of owning. Many of these things can not only be expressed in non-material terms, they can be acquired by non-material means.

And then there are the inexplicable pleasures of information itself, the joys of learning, knowing, and teaching. The strange good feeling of information coming into and out of oneself. Playing with ideas is a recreation which people must be willing to pay a lot for, given the market for books and elective seminars. We'd likely spend even more money for such pleasures if there weren't so many opportunities to pay for ideas with other ideas.

This explains much of the collective "volunteer" work which fills the archives, newsgroups, and databases of the Internet. Its denizens are not working for 'nothing," as is widely believed. Rather they are getting paid in something besides money. It is an economy which consists almost entirely of information.

This may become the dominant form of human trade, and if we persist in modeling economics on a strictly monetary basis, we may be gravely misled.
 
 

Getting Paid in Cyberspace

How all the foregoing relates to solutions to the crisis in intellectual property is something I've barely started to wrap my mind around. It's fairly paradigm-warping to look at information through fresh eyes--to see how very little it is like pig iron or pork bellies, to imagine the tottering travesties of case law we will stack up if we go on treating it legally as though it were.

As I've said, I believe these towers of outmoded boilerplate will be a smoking heap sometime in the next decade and we mind miners will have no choice but to cast our lot with new systems that work.

I'm not really so gloomy about our prospects as readers of this jeremiad so far might conclude. Solutions will emerge. Nature abhors a vacuum and so does commerce.

Indeed, one of the aspects of the electronic frontier which I have always found most appealing--and the reason Mitch Kapor and I used that phrase in naming our foundation--is the degree to which it resembles the 19th Century American West in its natural preference for social devices which emerge from it conditions rather than those which are imposed from the outside.

Until the west was fully settled and "civilized" in this century, order was established according to an unwritten Code of the West which had the fluidity of etiquette rather than the rigidity of law. Ethics were more important than rules. Understandings were preferred over laws, which were, in any event, largely unenforceable.

I believe that law, as we understand it, was developed to protect the interests which arose in the two economic "waves" which Alvin Toffler accurately identified in The Third Wave. The First Wave was agriculturally based and required law to order ownership of the principal source of production, land. In the Second Wave, manufacturing became the economic mainspring, and the structure of modern law grew around the centralized institutions which needed protection for their reserves of capital, manpower, and hardware.

Both of these economic systems required stability. Their laws were designed to resist change and to assure some equability of distribution within a fairly static social framework. The possibility spaces had to be constrained to preserve the predictability necessary to either land stewardship or capital formation.

In the Third Wave we have now entered, information to a large extent replaces land, capital, and hardware, and as I have detailed in the preceding section, information is most at home in a much more fluid and adaptable environment. The Third Wave is likely to bring a fundamental shift in the purposes and methods of law which will affect far more than simply those statutes which govern intellectual property.

The "terrain" itself--the architecture of the Net--may come to serve many of the purposes which could only be maintained in the past by legal imposition. For example, it may be unnecessary to constitutionally assure freedom of expression in an environment which, in the words of my fellow EFF co-founder John Gilmore, "treats censorship as a malfunction" and re-routes proscribed ideas around it.

Similar natural balancing mechanisms may arise to smooth over the social discontinuities which previously required legal intercession to set right. On the Net, these differences are more likely to be spanned by a continuous spectrum which connects as much as it separates.

And, despite their fierce grip on the old legal structure, companies which trade in information are likely to find that in their increasing inability to deal sensibly with technological issues, the courts will not produce results which are predictable enough to be supportive of long-term enterprise. Every litigation becomes like a game of Russian roulette, depending on the depth the presiding judge's clue-impairment.

Uncodified or adaptive "law," while as "fast, loose, and out of control" as other emergent forms, is probably more likely to yield something like justice at this point. In fact, one can already see in development new practices to suit the conditions of virtual commerce. The life forms of information are evolving methods to protect their continued reproduction.

For example, while all the tiny print on a commercial diskette envelope punctiliously requires much of those who would open it, there are, as I say, few who read those provisos, let alone follow them to the letter. And yet, the software business remains a very healthy sector of the American economy.

Why is this? Because people seem to eventually buy the software they really use. Once a program becomes central to your work, you want the latest version of it, the best support, the actual manuals, all privileges which are attached to ownership. Such practical considerations will, in the absence of working law, become more and more important in important in getting paid for what might easily be obtained for nothing.

I do think that some software is being purchased in the service of ethics or the abstract awareness that the failure to buy it will result in its not being produced any longer, but I'm going to leave those motivators aside. While I believe that the failure of law will almost certainly result in a compensating re-emergence of ethics as the ordering template of society, this is a belief I don't have room to support here.

Instead, I think that, as in the case cited above, compensation for soft products will be driven primarily by practical considerations, all of them consistent with the true properties of digital information, where the value lies in it, and how it can be both manipulated and protected by technology.

While the conundrum remains a conundrum, I can begin to see the directions from which solutions may emerge, based in part on broadening those practical solutions which are already in practice.
 
 

Relationship and Its Tools

I believe one idea is central to understanding liquid commerce: Information economics, in the absence of objects, will be based more on relationship than possession.

One existing model for the future conveyance of intellectual property is real time performance, a medium currently used only in theater, music, lectures, stand-up comedy and pedagogy. I believe the concept of performance will expand to include most of the information economy from multi-casted soap operas to stock analysis. In these instances, commercial exchange will be more like ticket sales to a continuous show than the purchase of discrete bundles of that which is being shown.

The other model, of course, is service. The entire professional class--doctors, lawyers, consultants, architects, etc.--are already being paid directly for their intellectual property. Who needs copyright when you're on a retainer?

In fact, this model was applied to much of what is now copyrighted until the late 18th Century. Before the industrialization of creation, writers, composers, artists, and the like produced their products in the private service of patrons. Without objects to distribute in a mass market, creative people will return to a condition somewhat like this, except that they will serve many patrons, rather than one.

We can already see the emergence of companies which base their existence on supporting and enhancing the soft property they create rather than selling it by the shrink-wrapped piece or embedding it in widgets.

Trip Hawkins' new company for creating and licensing multimedia tools, 3DO, is an example of what I'm talking about. 3DO doesn't intend to produce any commercial software or consumer devices. Instead, they will act as a kind of private standards setting body, mediating among software and device creators who will be their licensees. They will provide a point of commonalty for relationships between a broad spectrum of entities.

In any case, whether you think of yourself as a service provider or a performer, the future protection of your intellectual property will depend on your ability to control your relationship to the market--a relationship which will most likely live and grow over a period of time.

The value of that relationship will reside in the quality of performance, the uniqueness of your point of view, the validity of your expertise, its relevance to your market, and, underlying everything, the ability of that market to access your creative services swiftly, conveniently, and interactively.
 
 

Interaction and Protection

Direct interaction will provide a lot of intellectual property protection in the future, and, indeed, it already has. No one knows how many software pirates have bought legitimate copies of a program after calling its publisher for technical support and being asked for some proof of purchase, but I would guess the number is very high.

The same kind of controls will be applicable to "question and answer" relationships between authorities (or artists) and those who seek their expertise. Newsletters, magazines, and books will be supplemented by the ability of their subscribers to ask direct questions of authors.

Interactivity will be a billable commodity even in the absence of authorship. As people move into the Net and increasingly get their information directly from its point of production, unfiltered by centralized media, they will attempt to develop the same interactive ability to probe reality which only experience has provided them in the past. Live access to these distant "eyes and ears" will be much easier to cordon than access to static bundles of stored but easily reproducible information.

In most cases, control will be based on restricting access to the freshest, highest bandwidth information. It will be a matter of defining the ticket, the venue, the performer, and the identity of the ticket holder, definitions which I believe will take their forms from technology, not law.

In most cases, the defining technology will be cryptography.

Crypto Bottling

Cryptography, as I've said perhaps too many times, is the "material" from which the walls, boundaries--and bottles--of Cyberspace will be fashioned.

Of course there are problems with cryptography or any other purely technical method of property protection. It has always appeared to me that the more security you hide your goods behind, the more likely you are to turn your sanctuary into a target. Having come from a place where people leave their keys in their cars and don't even have keys to their houses, I remain convinced that the best obstacle to crime is a society with its ethics intact.

While I admit that this is not the kind of society most of us live in, I also believe that a social over-reliance on protection by barricades rather than conscience will eventually wither the latter by turning intrusion and theft into a sport, rather than a crime. This is already occurring in the digital domain as is evident in the activities of computer crackers.

Furthermore, I would argue that initial efforts to protect digital copyright by copy protection contributed to the current condition in which most otherwise ethical computer users seem morally untroubled by their possession of pirated software.

Instead of cultivating among the newly computerized a sense of respect for the work of their fellows, early reliance on copy protection led to the subliminal notion that cracking into a software package somehow "earned" one the right to use it. Limited not by conscience but by technical skill, many soon felt free to do whatever they could get away with. This will continue to be a potential liability of the encryption of digitized commerce.

Furthermore, it's cautionary to remember that copy protection was rejected by the market in most areas. Many of the upcoming efforts to use cryptography-based protection schemes will probably suffer the same fate. People are not going to tolerate much which makes computers harder to use than they already are without any benefit to the user.

Nevertheless, encryption has already demonstrated a certain blunt utility. New subscriptions to various commercial satellite TV services sky-rocketed recently after their deployment of more robust encryption of their feeds. This, despite a booming backwoods trade in black decoder chips conducted by folks who'd look more at home running moonshine than cracking code.

Another obvious problem with encryption as a global solution is that once something has been unscrambled by a legitimate licensee, it may be openly available to massive reproduction.

In some instances, reproduction following decryption may not be a problem. Many soft products degrade sharply in value with time. It may be that the only real interest in some such products will be among those who have purchased the keys to immediacy.

Furthermore, as software becomes more modular and distribution moves online, it will begin to metamorphose in direct interaction with its user base. Discontinuous upgrades will smooth into a constant process of incremental improvement and adaptation, some of it man-made and some of it arising through genetic algorithms. Pirated copies of software may become too static to have much value to anyone.

Even in cases such as images, where the information is expected to remain fixed, the unencrypted file could still be interwoven with code which could continue to protect it by a wide variety of means.

In most of the schemes I can project, the file would be "alive" with permanently embedded software which could "sense" the surrounding conditions and interact with them, For example, it might contain code which could detect the process of duplication and cause it to self-destruct.

Other methods might give the file the ability to "phone home" through the Net to its original owner. The continued integrity of some files might require periodic "feeding" with digital cash from their host, which they would then relay back to their authors.

Of course files which possess the independent ability to communicate upstream sound uncomfortably like the Morris Internet Worm. "Live" files do have a certain viral quality. And serious privacy issues would arise if everyone's computer were packed with digital spies.

The point is that cryptography will enable a lot of protection technologies which will develop rapidly in the obsessive competition which has always existed between lock-makers and lock-breakers.

But cryptography will not be used simply for making locks. It is also at the heart of both digital signatures and the afore-mentioned digital cash, both of which I believe will be central to the future protection of intellectual property.

I believe that the generally acknowledged failure of the shareware model in software had less to do with dishonesty than with the simple inconvenience of paying for shareware. If the payment process can be automated, as digital cash and signature will make possible, I believe that soft product creators will reap a much higher return from the bread they cast upon the waters of Cyberspace.

Moreover, they will be spared much of the overhead which presently adheres to the marketing, manufacture, sales, and distribution of information products, whether those products are computer programs, books, CD's, or motion pictures. This will reduce prices and further increase the likelihood of non-compulsory payment.

But of course there is a fundamental problem with a system which requires, through technology, payment for every access to a particular expression. It defeats the original Jeffersonian purpose of seeing that ideas were available to everyone regardless of their economic station. I am not comfortable with a model which will restrict inquiry to the wealthy.

An Economy of Verbs

The future forms and protections of intellectual property are densely obscured from the entrance to the Virtual Age. Nevertheless, I can make (or reiterate) a few flat statements which I earnestly believe won't look too silly in fifty years.

In the absence of the old containers, almost everything we think we know about intellectual property is wrong. We are going to have to unlearn it. We are going to have to look at information as though we'd never seen the stuff before.

The protections which we will develop will rely far more on ethics and technology than on law.
 
 

Encryption will be the technical basis for most intellectual property protection. (And should, for this and other reasons, be made more widely available.)

The economy of the future will be based on relationship rather than possession. It will be continuous rather than sequential.

And finally, in the years to come, most human exchange will be virtual rather than physical, consisting not of stuff but the stuff of which dreams are made. Our future business will be conducted in a world made more of verbs than nouns.

Ojo Caliente, New Mexico, October 1, 1992

New York, New York, November 6, 1992

Brookline, Massachusetts, November 8, 1992

New York, New York, November 15, 1993

San Francisco, California, November 20, 1993

Pinedale, Wyoming, November 24-30, 1993

New York, New York, December 13-14, 1993

This expression has lived and grown to this point over the time period and in the places detailed above. Despite its print publication here, I expect it will continue to evolve in liquid form, possibly for years.

The thoughts in it have not been "mine" alone but have assembled themselves in a field of interaction which has existed between myself and numerous others, to whom I am grateful. They particularly include: Pamela Samuelson, Kevin Kelly, Mitch Kapor, Mike Godwin, Stewart Brand, Mike Holderness, Miram Barlow, Danny Hillis, Trip Hawkins, and Alvin Toffler.

However, I should note in honesty that when Wired sends me a check for having temporarily "fixed" it on their pages, I alone will cash it...



INTERNATIONAL NEWS SERVICE v. THE ASSOCIATED PRESS

SUPREME COURT OF THE UNITED STATES

28 U.S. 215; 63 L. Ed. 211; 39 S. Ct. 68; 2 A.L.R. 293

Argued May 2, 3, 1918

December 23, 1918

  OPINIONBY: PITNEY

OPINION: [*229] [***69] [**216] MR. JUSTICE PITNEY delivered the opinion of the court.

The parties are competitors in the gathering and distribution of news and its publication for profit in newspapers throughout the United States. The Associated Press, which was complainant in the District Court, is a cooperative organization, incorporated under the Membership Corporations Law of the State of New York, its members being individuals who are either proprietors or representatives [**217] of about 950 daily newspapers published in all parts of the United States. That a corporation may be organized under that act for the purpose of gathering news for the use and benefit of its members and for publication in newspapers owned or represented by them, is recognized by an amendment enacted in 1901 (Laws N.Y. 1901, c. 436). Complainant gathers in all parts of the world, by means of various instrumentalities of its own, by exchange with its members, and by other appropriate means, news and intelligence of current and recent events of interest to newspaper readers and distributes it daily to its members for publication in their newspapers. The cost of the service, amounting approximately to $ 3,500,000 per annum, is assessed upon the members and becomes a part of their costs of operation, to be recouped, presumably with profit, through [*230] the publication of their several newspapers. Under complainant's by-laws each member agrees upon assuming membership that news received through complainant's service is received exclusively for publication in a particular newspaper, language, and place specified in the certificate of membership, that no other use of it shall be permitted, and that no member shall furnish or permit anyone in his employ or connected with his newspaper to furnish any of complainant's news in advance of publication to any person not a member. And each member is required to gather the local news of his district and supply it to the Associated Press and to no one else.

Defendant is a corporation organized under the laws of the State of New Jersey, whose business is the gathering and selling of news to its customers and clients, consisting of newspapers published throughout the United States, under contracts by which they pay certain amounts at stated times for defendant's service. It has wide-spread news-gathering agencies; the cost of its operations amounts, it is said, to more than $ 2,000,000 per annum; and it serves about 400 newspapers located in the various cities of the United States and abroad, a few of which are represented, also, in the membership of the Associated Press.

The parties are in the keenest competition between themselves in the distribution of news throughout the United States; and so, as a rule, are the newspapers that they serve, in their several districts.

Complainant in its bill, defendant in its answer, have set forth in almost identical terms the rather obvious circumstances and conditions under which their business is conducted. The value of the service, and of the news furnished, depends upon the promptness of transmission, as well as upon the accuracy and impartiality of the news; it being essential that the news be transmitted to members or subscribers as early or earlier than similar information can be furnished to competing newspapers [*231] by other news services, and that the news furnished by each agency shall not be furnished to newspapers which do not contribute to the expense of gathering it. And further, to quote from the answer: "Prompt knowledge and publication of world-wide news is essential to the conduct of a modern newspaper, and by reason of the enormous expense incident to the gathering and distribution of such news, the only practical way in which a proprietor of a newspaper can obtain the same is, either through cooperation with a considerable number of other newspaper proprietors in the work of collecting and distributing such news, and the equitable division with them of the expenses thereof, or by the purchase of such news from some existing agency engaged in that business."

The bill was filed to restrain the pirating of complainant's news by defendant in three ways: First, by bribing employees of newspapers published by complainant's members to furnish Associated Press news to defendant before publication, for transmission by telegraph and telephone to defendant's clients for publication by them; Second, by [***70] inducing Associated Press members to violate its by-laws and permit defendant to obtain news before publication; and Third, by copying news from bulletin boards and from early editions of complainant's newspapers and selling this, either bodily or after rewriting it, to defendant's customers.

The District Court, upon consideration of the bill and answer, with voluminous affidavits on both sides, granted a preliminary injunction under the first and second heads; but refused at that stage to restrain the systematic practice admittedly pursued by defendant, of taking news bodily from the bulletin boards and early editions of complainant's newspapers and selling it as its own. The court expressed itself as satisfied that this practice amounted to unfair trade, but as the legal question was [*232] one of first impression it considered that the allowance of an injunction should await the outcome of an appeal. 240 Fed. Rep. 983, 996. Both parties having appealed, the Circuit Court of Appeals sustained the injunction [**218] order so far as it went, and upon complainant's appeal modified it and remanded the cause with directions to issue an injunction also against any bodily taking of the words or substance of complainant's news until its commercial value as news had passed away. 245 Fed. Rep. 244, 253. The present writ of certiorari was then allowed. 245 U.S. 644.

The only matter that has been argued before us is whether defendant may lawfully be restrained from appropriating news taken from bulletins issued by complainant or any of its members, or from newspapers published by them, for the purpose of selling it to defendant's clients. Complainant asserts that defendant's admitted course of conduct in this regard both violates complainant's property right in the news and constitutes unfair competition in business. And notwithstanding the case has proceeded only to the stage of a preliminary injunction, we have deemed it proper to consider the underlying questions, since they go to the very merits of the action and are presented upon facts that are not in dispute. As presented in argument, these questions are: 1. Whether there is any property in news; 2. Whether, if there be property in news collected for the purpose of being published, it survives the instant of its publication in the first newspaper to which it is communicated by the news-gatherer; and 3. Whether defendant's admitted course of conduct in appropriating for commercial use matter taken from bulletins or early editions of Associated Press publications constitutes unfair competition in trade.

The federal jurisdiction was invoked because of diversity of citizenship, not upon the ground that the suit arose under the copyright or other laws of the United [*233] States. Complainant's news matter is not copyrighted. It is said that it could not, in practice, be copyrighted, because of the large number of dispatches that are sent daily; and, according to complainant's contention, news is not within the operation of the copyright act. Defendant, while apparently conceding this, nevertheless invokes the analogies of the law of literary property and copyright, insisting as its principal contention that, assuming complainant has a right of property in its news, it can be maintained (unless the copyright act be complied with) only by being kept secret and confidential, and that upon the publication with complainant's consent of uncopyrighted news by any of complainant's members in a newspaper or upon a bulletin board, the right of property is lost, and the subsequent use of the news by the public or by defendant for any purpose whatever becomes lawful.

A preliminary objection to the form in which the suit is brought may be disposed of at the outset. It is said that the Circuit Court of Appeals granted relief upon considerations applicable to particular members of the Associated Press, and that this was erroneous because the suit was brought by complainant as a corporate entity, and not by its members; the argument being that their interests cannot be protected in this proceeding any more than the individual rights of a stockholder can be enforced in an action brought by the corporation. From the averments of the bill, however, it is plain that the suit in substance was brought for the benefit of complainant's members, and that they would be proper parties, and, except for their numbers, perhaps necessary parties. Complainant is a proper party to conduct the suit as representing their interest; and since no specific objection, based upon the want of parties, appears to have been made below, we will treat the objection as waived. See Equity Rules 38, 43, 44.

[*234] In considering the general question of property in news matter, it is necessary to recognize its dual character, distinguishing between the substance of the information and the particular form or collocation of words in which the writer has communicated it.

No doubt news articles often possess a literary quality, and are the subject of literary property at the common law; nor do we question that such an article, as a literary production, is the subject of copyright by the terms of the act as it now stands. In an early case at the circuit Mr. Justice Thompson held in effect that a newspaper was not within the protection of the copyright acts of 1790 and 1802 (Clayton v. Stone, 2 Paine, 382; 5 Fed. Cas. No. 2872). But the present act is broader; it provides that the works for which copyright may be secured shall include "all the writings of an author," and specifically mentions [***71] "periodicals, including newspapers." Act of March 4, 1909, c. 320, @@ 4 and 5, 35 Stat. 1075, 1076. Evidently this admits to copyright a contribution to a newspaper, notwithstanding it also may convey news; and such is [**219] the practice of the copyright office, as the newspapers of the day bear witness. See Copyright Office Bulletin No. 15 (1917), pp. 7, 14, 16-17.

But the news element -- the information respecting current events contained in the literary production -- is not the creation of the writer, but is a report of matters that ordinarily are publici juris; it is the history of the day. It is not to be supposed that the framers of the Constitution, when they empowered Congress "to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries" (Const., Art I, @ 8, par. 8), intended to confer upon one who might happen to be the first to report a historic event the exclusive right for any period to spread the knowledge of it.

We need spend no time, however, upon the general [*235] question of property in news matter at common law, or the application of the copyright act, since it seems to us the case must turn upon the question of unfair competition in business. And, in our opinion, this does not depend upon any general right of property analogous to the common-law right of the proprietor of an unpublished work to prevent its publication without his consent; nor is it foreclosed by showing that the benefits of the copyright act have been waived. We are dealing here not with restrictions upon publication but with the very facilities and processes of publication. The peculiar value of news is in the spreading of it while it is fresh; and it is evident that a valuable property interest in the news, as news, cannot be maintained by keeping it secret. Besides, except for matters improperly disclosed, or published in breach of trust or confidence, or in violation of law, none of which is involved in this branch of the case, the news of current events may be regarded as common property. What we are concerned with is the business of making it known to the, in which both parties to the present suit are engaged. That business consists in maintaining a prompt, sure, steady, and reliable service designed to place the daily events of the world at the breakfast table of the millions at a price that, while of trifling moment to each reader, is sufficient in the aggregate to afford compensation for the cost of gathering and distributing it, with the added profit so necessary as an incentive to effective action in the commercial world. The service thus performed for newspaper readers is not only innocent but extremely useful in itself, and indubitably constitutes a legitimate business. The parties are competitors in this field; and, on fundamental principles, applicable here as elsewhere, when the rights or privileges of the one are liable to conflict with those of the other, each party is under a duty so to conduct its own business as not unnecessarily or unfairly to injure [*236] that of the other. Hitchman Coal & Coke Co. v. Mitchell, 245 U.S. 229, 254.

Obviously, the question of what is unfair competition in business must be determined with particular reference to the character and circumstances of the business. The question here is not so much the rights of either party as against the public but their rights as between themselves. See Morison v. Moat, 9 Hare, 241, 258. And although we may and do assume that neither party has any remaining property interest as against the public in uncopyrighted news matter after the moment of its first publication, it by no means follows that there is no remaining property interest in it as between themselves. For, to both of them alike, news matter, however little susceptible of ownership or dominion in the absolute sense, is stock in trade, to be gathered at the cost of enterprise, organization, skill, labor, and money, and to be distributed and sold to those who will pay money for it, as for any other merchandise. Regarding the news, therefore, as but the material out of which both parties are seeking to make profits at the same time and in the same field, we hardly can fail to recognize that for this purpose, and as between them, it must be regarded as quasi property, irrespective of the rights of either as against the public.

In order to sustain the jurisdiction of equity over the controversy, we need not affirm any general and absolute property in the news as such. The rule that a court of equity concerns itself only in the protection of property rights treats any civil right of a pecuniary nature as a property right (In re Sawyer, 124 U.S. 200, 210; In re Debs, 158 U.S. 564, 593); and the right to acquire property by honest labor or the conduct of a lawful business is as much entitled to protection as the right to guard property already acquired. Truax v. Raich, 239 U.S. 33, 37-38; [**220] Brennan v. United Hatters, 73 N.J.L. 729, 742; [*237] Barr v. Essex Trades Council, 53 N.J. Eq. 101. It is this right that furnishes the basis of the jurisdiction in the ordinary case of unfair competition.

The question, whether one who has gathered general information or news at pains and expense for the purpose of subsequent publication through the press has such an interest [***72] in its publication as may be protected from interference, has been raised many times, although never, perhaps, in the precise form in which it is now presented.

Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236, 250, related to the distribution of quotations of prices on dealings upon a board of trade, which were collected by plaintiff and communicated on confidential terms to numerous persons under a contract not to make them public. This court held that, apart from certain special objections that were overruled, plaintiff's collection of quotations was entitled to the protection of the law; that, like a trade secret, plaintiff might keep to itself the work done at its expense, and did not lose its right by communicating the result to persons, even if many, in confidential relations to itself, under a contract not to make it public; and that strangers should be restrained from getting at the knowledge by inducing a breach of trust.

In National Tel. News Co. v. Western Union Tel. Co., 119 Fed. Rep. 294, the Circuit Court of Appeals for the Seventh Circuit dealt with news matter gathered and transmitted by a telegraph company, and consisting merely of a notation of current events having but a transient value due to quick transmission and distribution; and, while declaring that this was not copyrightable although printed on a tape by tickers in the offices of the recipients, and that it was a commercial not a literary product, nevertheless held that the business of gathering and communicating the news -- the service of purveying it -- was a legitimate business, meeting a distinctive commercial want and adding to the facilities of the business [*238] world, and partaking of the nature of property in a sense that entitled it to the protection of a court of equity against piracy.

Other cases are cited, but none that we deem it necessary to mention.

Not only do the acquisition and transmission of news require elaborate organization and a large expenditure of money, skill, and effort; not only has it an exchange value to the gatherer, dependent chiefly upon its novelty and freshness, the regularity of the service, its reputed reliability and thoroughness, and its adaptability to the public needs; but also, as is evident, the news has an exchange value to one who can misappropriate it.

The peculiar features of the case arise from the fact that, while novelty and freshness form so important an element in the success of the business, the very processes of distribution and publication necessarily occupy a good deal of time. Complainant's service, as well as defendant's, is a daily service to daily newspapers; most of the foreign news reaches this country at the Atlantic seaboard, principally at the City of New York, and because of this, and of time differentials due to the earth's rotation, the distribution of news matter throughout the country is principally from east to west; and, since in speed the telegraph and telephone easily outstrip the rotation of the earth, it is a simple matter for defendant to take complainant's news from bulletins or early editions of complainant's members in the eastern cities and at the mere cost of telegraphic transmission cause it to be published in western papers issued at least as early as those served by complainant. Besides this, and irrespective of time differentials, irregularities in telegraphic transmission on different lines, and the normal consumption of time in printing and distributing the newspaper, result in permitting pirated news to be placed in the hands of defendant's readers sometimes simultaneously with the service [*239] of competing Associated Press papers, occasionally even earlier.

Defendant insists that when, with the sanction and approval of complainant, and as the result of the use of its news for the very purpose for which it is distributed, a portion of complainant's members communicate it to the general public by posting it upon bulletin boards so that all may read, or by issuing it to newspapers and distributing it indiscriminately, complainant no longer has the right to control the use to be made of it; that when it thus reaches the light of day it becomes the common possession of all to whom it is accessible; and that any purchaser of a newspaper has the right to communicate the intelligence which it contains to anybody and for any purpose, even for the purpose of selling it for profit to newspapers published for [**221] profit in competition with complainant's members.

The fault in the reasoning lies in applying as a test the right of the complainant as against the public, instead of considering the rights of complainant and defendant, competitors in business, as between themselves. The right of the purchaser of a single newspaper to spread knowledge of its contents gratuitously, for any legitimate purpose not unreasonably interfering with complainant's right to make merchandise of it, may be admitted; but to transmit that news for commercial use, in competition with complainant -- which is what defendant has done and seeks to justify -- is a very different matter. In doing this defendant, by its very act, admits that it is taking material that has been acquired by complainant as the result of organization and the expenditure of labor, skill, and money, and which is salable by complainant for money, and that defendant in appropriating it and selling it as its own is endeavoring to reap where it has not sown, and by disposing of it to newspapers that are competitors of complainant's members is appropriating to itself the harvest [*240] of those who have sown. Stripped of all disguises, the process amounts to an unauthorized interference [***73] with the normal operation of complainant's legitimate business precisely at the point where the profit is to be reaped, in order to divert a material portion of the profit from those who have earned it to those who have not; with special advantage to defendant in the competition because of the fact that it is not burdened with any part of the expense of gathering the news. The transaction speaks for itself, and a court of equity ought not to hesitate long in characterizing it as unfair competition in business.

The underlying principle is much the same as that which lies at the base of the equitable theory of consideration in the law of trusts -- that he who has fairly paid the price should have the beneficial use of the property. Pom. Eq. Jur., @ 981. It is no answer to say that complainant spends its money for that which is too fugitive or evanescent to be the subject of property. That might, and for the purposes of the discussion we are assuming that it would, furnish an answer in a common-law controversy. But in a court of equity, where the question is one of unfair competition, if that which complainant has acquired fairly at substantial cost may be sold fairly at substantial profit, a competitor who is misappropriating it for the purpose of disposing of it to his own profit and to the disadvantage of complainant cannot be heard to say that it is too fugitive or evanescent to be regarded as property. It has all the attributes of property necessary for determining that a misappropriation of it by a competitor is unfair competition because contrary to good conscience.

The contention that the news is abandoned to the public for all purposes when published in the first newspaper is untenable. Abandonment is a question of intent, and the entire organization of the Associated Press negatives such a purpose. The cost of the service would be prohibitive if the reward were to be so limited. No single [*241] newspaper, no small group of newspapers, could sustain the expenditure. Indeed, it is one of the most obvious results of defendant's theory that, by permitting indiscriminate publication by anybody and everybody for purposes of profit in competition with the news-gatherer, it would render publication profitless, or so little profitable as in effect to cut off the service by rendering the cost prohibitive in comparison with the return. The practical needs and requirements of the business are reflected in complainant's by-laws which have been referred to. Their effect is that publication by each member must be deemed not by any means an abandonment of the news to the world for any and all purposes, but a publication for limited purposes; for the benefit of the readers of the bulletin or the newspaper as such; not for the purpose of making merchandise of it as news, with the result of depriving complainant's other members of their reasonable opportunity to obtain just returns for their expenditures.

It is to be observed that the view we adopt does not result in giving to complainant the right to monopolize either the gathering or the distribution of the news, or, without complying with the copyright act, to prevent the reproduction of its news articles; but only postpones participation by complainant's competitor in the processes of distribution and reproduction of news that it has not gathered, and only to the extent necessary to prevent that competitor from reaping the fruits of complainant's efforts and expenditure, to the partial exclusion of complainant, and in violation of the principle that underlies the maxim sic utere tuo, etc.

It is said that the elements of unfair competition are lacking because there is no attempt by defendant to palm off its [**222] goods as those of the complainant, characteristic of the most familiar, if not the most typical, cases of unfair competition. Howe Scale Co. v. Wyckoff, Seamans & Benedict, 198 U.S. 118, 140. But we cannot concede that [*242] the right to equitable relief is confined to that class of cases. In the present case the fraud upon complainant's rights is more direct and obvious. Regarding news matter as the mere material from which these two competing parties are endeavoring to make money, and treating it, therefore, as quasi property for the purposes of their business because they are both selling it as such, defendant's conduct differs from the ordinary case of unfair competition in trade principally in this that, instead of selling its own goods as those of complainant, it substitutes misappropriation in the place of misrepresentation, and sells complainant's goods as its own.

Besides the misappropriation, there are elements of imitation, of false pretense, in defendant's practices. The device of rewriting complainant's news articles, frequently resorted to, carries its own comment. The habitual failure to give credit to complainant for that which is taken is significant. Indeed, the entire system of appropriating complainant's news and transmitting it as a commercial product to defendant's clients and patrons amounts to a false representation to them and to their newspaper readers that the news transmitted is the result of defendant's own investigation in the field. But these elements, although accentuating the wrong, are not the essence of it. It is something more than the advantage of celebrity of which complainant is being deprived.

The doctrine of unclean hands is invoked as a bar to relief; it being insisted that defendant's practices against which complainant seeks an injunction are not different from the practice attributed to complainant, of utilizing defendant's news published by its subscribers. At this point it becomes [***74] necessary to consider a distinction that is drawn by complainant, and, as we understand it, was recognized by defendant also in the submission of proofs in the District Court, between two kinds of use that may be made by one news agency of news taken from the [*243] bulletins and newspapers of the other. The first is the bodily appropriation of a statement of fact or a news article, with or without rewriting, but without independent investigation or other expense. This form of pirating was found by both courts to have been pursued by defendant systematically with respect to complainant's news, and against it the Circuit Court of Appeals granted an injunction. This practice complainant denies having pursued, and the denial was sustained by the finding of the District Court. It is not contended by defendant that the finding can be set aside, upon the proofs as they now stand. The other use is to take the news of a rival agency as a "tip" to be investigated, and if verified by independent investigation the news thus gathered is sold. This practice complainant admits that it has pursued and still is willing that defendant shall employ.

Both courts held that complainant could not be debarred on the ground of unclean hands upon the score of pirating defendant's news, because not shown to be guilty of sanctioning this practice.

As to securing "tips" from a competing news agency, the District Court (240 Fed. Rep. 991, 995), while not sanctioning the practice, found that both parties had adopted it in accordance with common business usage, in the belief that their conduct was technically lawful, and hence did not find in it any sufficient ground for attributing unclean hands to complainant. The Circuit Court of Appeals (245 Fed. Rep. 247) found that the tip habit, though discouraged by complainant, was "incurably journalistic," and that there was "no difficulty in discriminating between the utilization of 'tips' and the bodily appropriation of another's labor in accumulating and stating information."

We are inclined to think a distinction may be drawn between the utilization of tips and the bodily appropriation of news matter, either in its original form or after [*244] rewriting and without independent investigation and verification; whatever may appear at the final hearing, the proofs as they now stand recognize such a distinction; both parties avowedly recognize the practice of taking tips, and neither party alleges it to be unlawful or to amount to unfair competition in business. In a line of English cases a somewhat analogous practice has been held not to amount to an infringement of the copyright of a directory or other book containing compiled information. In Kelly v. Morris, L.R. 1 Eq. 697, 701, 702, Vice Chancellor Sir William Page Wood (afterwards Lord Hatherly), dealing with such a case, said that defendant was "not entitled to take one word of the information [**223] previously published without independently working out the matter for himself, so as to arrive at the same result from the same common sources of information, and the only use that he can legitimately make of a previous publication is to verify his own calculations and results when obtained." This was followed by Vice Chancellor Giffard in Morris v. Ashbee, L.R. 7 Eq. 34, where he said: "In a case such as this no one has a right to take the results of the labour and expense incurred by another for the purposes of a rival publication, and thereby save himself the expense and labour of working out and arriving at these results by some independent road." A similar view was adopted by Lord Chancellor Hatherly and the former Vice Chancellor, then Giffard, L.J., in Pike v. Nicholas, L.R. 5 Ch. App. Cas. 251, and shortly afterwards by the latter judge in Morris v. Wright, L.R. 5 Ch. App. Cas. 279, 287, where he said, commenting upon Pike v. Nicholas: "It was a perfectly legitimate course for the defendant to refer to the plaintiff's book, and if, taking that book as his guide, he went to the original authorities and compiled his book from them, he made no unfair or improper use of the plaintiff's book; and so here, if the fact be that Mr. Wright used the plaintiff's [*245] book in order to guide himself to the persons on whom it would be worth his while to call, and for no other purpose, he made a perfectly legitimate use of the plaintiff's book."

A like distinction was recognized by the Circuit Court of Appeals for the Second Circuit in Edward Thompson Co. v. American Law Book Co., 122 Fed. Rep. 922, and in West Publishing Co. v. Edward Thompson Co., 176 Fed. Rep. 833, 838.

In the case before us, in the present state of the pleadings and proofs, we need go no further than to hold, as we do, that the admitted pursuit by complainant of the practice of taking news items published by defendant's subscribers as tips to be investigated, and, if verified, the result of the investigation to be sold -- the practice having been followed by defendant also, and by news agencies generally -- is not shown to be such as to constitute an unconscientious or inequitable attitude towards its adversary so as to fix upon complainant the taint of unclean hands, and debar it on this ground from the relief to which it is otherwise entitled.

There is some criticism of the injunction that was directed by the District Court upon the going down of the mandate from the Circuit Court of Appeals. In brief, it restrains any taking or gainfully using of the complainant's [***75] news, either bodily or in substance, from bulletins issued by the complainant or any of its members, or from editions of their newspapers, "until its commercial value as news to the complainant and all of its members has passed away." The part complained of is the clause we have italicized; but if this be indefinite, it is no more so than the criticism. Perhaps it would be better that the terms of the injunction be made specific, and so framed as to confine the restraint to an extent consistent with the reasonable protection of complainant's newspapers, each in its own area and for a specified time after its [*246] publication, against the competitive use of pirated news by defendant's customers. But the case presents practical difficulties; and we have not the materials, either in the way of a definite suggestion of amendment, or in the way of proofs, upon which to frame a specific injunction; hence, while not expressing approval of the form adopted by the District Court, we decline to modify it at this preliminary stage of the case, and will leave that court to deal with the matter upon appropriate application made to it for the purpose.

The decree of the Circuit Court of Appeals will be

Affirmed.

MR. JUSTICE CLARKE took no part in the consideration or decision of this case.

CONCURBY: HOLMES

CONCUR: MR. JUSTICE HOLMES:

When an uncopyrighted combination of words is published there is no general right to forbid other people repeating them -- in other words there is no property in the combination or in the thoughts or facts that the words express. Property, a creation of law, does not arise from value, although exchangeable -- a matter of fact. Many exchangeable values may be destroyed intentionally without compensation. Property depends upon exclusion by law from interference, and a person is not excluded from using any combination of words merely because someone has used it before, even if it took labor and genius to make it. If a given person is to be prohibited from making the use of words that his neighbors are free to make some other ground must be found. One such ground is vaguely expressed in the phrase unfair trade. This means that the words are repeated by a competitor in business in such a way as [**224] to convey a misrepresentation that materially injures the person who first used them, by appropriating credit of some kind [*247] which the first user has earned. The ordinary case is a representation by device, appearance, or other indirection that the defendant's goods come from the plaintiff. But the only reason why it is actionable to make such a representation is that it tends to give the defendant an advantage in his competition with the plaintiff and that it is thought undesirable that an advantage should be gained in that way. Apart from that the defendant may use such unpatented devices and uncopyrighted combinations of words as he likes. The ordinary case, I say, is palming off the defendant's product as the plaintiff's, but the same evil may follow from the opposite falsehood -- from saying, whether in words or by implication, that the plaintiff's product is the defendant's, and that, it seems to me, is what has happened here.

Fresh news is got only by enterprise and expense. To produce such news as it is produced by the defendant represents by implication that it has been acquired by the defendant's enterprise and at its expense. When it comes from one of the great news-collecting agencies like the Associated Press, the source generally is indicated, plainly importing that credit; and that such a representation is implied may be inferred with some confidence from the unwillingness of the defendant to give the credit and tell the truth. If the plaintiff produces the news at the same time that the defendant does, the defendant's presentation impliedly denies to the plaintiff the credit of collecting the facts and assumes that credit to the defendant. If the plaintiff is later in western cities it naturally will be supposed to have obtained its information from the defendant. The falsehood is a little more subtle, the injury a little more indirect, than in ordinary cases of unfair trade, but I think that the principle that condemns the one condemns the other. It is a question of how strong an infusion of fraud is necessary to turn a flavor into a poison. The does seems to me strong [*248] enough here to need a remedy from the law. But as, in my view, the only ground of complaint that can be recognized without legislation is the implied misstatement, it can be corrected by stating the truth; and a suitable acknowledgment of the source is all that the plaintiff can require. I think that within the limits recognized by the decision of the Court the defendant should be enjoined from publishing news obtained from the Associated Press for hours after publication by the plaintiff unless it gives express credit to the Associated Press; the number of hours and the form of acknowledgment to be settled by the District Court.

MR. JUSTICE McKENNA concurs in this opinion.
 
 

DISSENT: MR. JUSTICE BRANDEIS dissenting.

There are published in the United States about 2,500 daily papers. n1 More than 800 of them are supplied with domestic and foreign news of general interest by the Associated Press -- a corporation without capital stock [***76] which does not sell news or earn or seek to earn profits, but serves merely as an instrumentality by means of which these papers supply themselves at joint expense with such news. Papers not members of the Associated Press depend for their news of general interest largely upon agencies organized for profit. n2 Among these agencies [*249] is the International News Service which supplies news to about 400 subscribing papers. It has, like the Associated Press, bureaus and correspondents in this and foreign countries; and its annual expenditure in gathering and distributing news is about $ 2,000,000. Ever since its organization in 1909, it has included among the sources from which it gathers news, copies (purchased in the open market) of early editions of some papers published by members of the Associated Press and the bulletins publicly posted by them. These items, which constitute but a small part of the news transmitted to its subscribers, are generally verified by the International News Service before transmission; but frequently items are transmitted without verification; and occasionally even without being re-written. In no case is the fact disclosed that [**225] such item was suggested by or taken from a paper or bulletin published by an Associated Press member.

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

n1 See American Newspaper Annual and Directory (1918), pp. 4, 10, 1193-1212.

n2 The Associated Press, by Frank B. Noyes, Sen. Doc. No. 27, 63d Cong., 1st sess. In a brief filed in this court by counsel for the Associated Press the number of its members is stated to be 1030. Some members of the Associated Press are also subscribers to the International News Service.

Strictly the member is not the publishing concern, but an individual who is the sole or part owner of a newspaper, or an executive officer of a company which owns one. By-laws, Article II, @ 1.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

No question of statutory copyright is involved. The sole question for our consideration is this: Was the International News Service properly enjoined from using, or causing to be used gainfully, news of which it acquired knowledge by lawful means (namely, by reading publicly posted bulletins or papers purchased by it in the open market) merely because the news had been originally gathered by the Associated Press and continued to be of value to some of its members, or because it did not reveal the source from which it was acquired?

The "ticker" cases, the cases concerning literary and artistic compositions, and cases of unfair competition were relied upon in support of the injunction. But it is admitted that none of those cases affords a complete analogy with that before us. The question presented for decision is new; and it is important.

News is a report of recent occurrences. The business of the news agency is to gather systematically knowledge [*250] of such occurrences of interest and to distribute reports thereof. The Associated Press contended that knowledge so acquired is property, because it costs money and labor to produce and because it has value for which those who have it not are ready to pay; that it remains property and is entitled to protection as long as it has commercial value as news; and that to protect it effectively the defendant must be enjoined from making, or causing to be made, any gainful use of it while it retains such value. An essential element of individual property is the legal right to exclude others from enjoying it. If the property is private, the right of exclusion may be absolute; if the property is affected with a public interest, the right of exclusion is qualified. But the fact that a product of the mind has cost its producer money and labor, and has a value for which others are willing to pay, is not sufficient to ensure to it this legal attribute of property. The general rule of law is, that the noblest of human productions -- knowledge, truths ascertained, conceptions, and ideas -- become, after voluntary communication to others, free as the air to common use. Upon these incorporeal productions the attribute of property is continued after such communication only in certain classes of cases where public policy has seemed to demand it. These exceptions are confined to productions which, in some degree, involve creation, invention, or discovery. But by no means all such are endowed with this attribute of property. The creations which are recognized as property by the common law are literary, dramatic, musical, and other artistic creations; and these have also protection under the copyright statutes. The inventions and discoveries upon which this attribute of property is conferred only by statute, are the few comprised within the patent law. There are also many other cases in which courts interfere to prevent curtailment of plaintiff's enjoyment of incorporeal productions; and in which the [*251] right to relief is often called a property right, but is such only in a special sense. In those cases, the plaintiff has no absolute right to the protection of his production; he has merely the qualified right to be protected as against the defendant's acts, because of the special relation in which the latter stands or the wrongful method or means employed in acquiring the knowledge or the manner in which it is used. Protection of this character is afforded where the suit is based upon breach of contract or of trust or upon unfair competition.

The knowledge for which protection is sought in the case at bar is not of a kind upon which the law has heretofore conferred the attributes of property; nor is the manner of its acquisition or use nor the purpose to which it is applied, such as has heretofore been recognized as entitling a plaintiff to relief.

First: Plaintiff's principal reliance was upon the "ticker" cases; but they do not support [***77] its contention. The leading cases on this subject rest the grant of relief, not upon the existence of a general property right in news, but upon the breach of a contract or trust concerning the use of news communicated; and that element is lacking here. In Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236, 250, the court said the Board "does not lose its rights by communicating the result [the quotations] to persons, even if many, in confidential relations to itself, under a contract not to make it public, and strangers to the trust will be restrained from getting at the knowledge by inducing a breach of trust and using knowledge obtained by such a breach." And it is also stated there, (page 251): "Time is of the essence in matters like this, and it fairly may be said that, if the contracts with the plaintiff are kept, the information will not [**226] become public property until the plaintiff has gained its reward." The only other case in this court which relates to this subject is Hunt v. N.Y. Cotton Exchange, 205 U.S. [*252] 322. While the opinion there refers the protection to a general property right in the quotations, the facts are substantially the same as those in the Christie Case, which is the chief authority on which the decision is based. Of the cases in the lower federal courts and in the state courts it may be said, that most of them too can, on their facts, be reconciled with this principle, though much of the language of the courts cannot be. n1 In spite of anything that may appear in these cases to the contrary it seems that the true principle is stated in the Christie Case, that the collection of quotations "stands like a trade secret." And in Dr. Miles Medical Co v. Park & Sons Co., 220 U.S. 373, 402, this court says of a trade secret: "Any one may use it who fairly, by analysis and experiment, discovers it. But the complainant is entitled to be protected against invasion of its right in the process by fraud or by breach of trust or contract." See John D. Park & Sons Co. v. Hartman, 153 Fed. Rep. 24, 29.

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

n1 Board of Trade of City of Chicago v. Tucker, 221 Fed. Rep. 305; Board of Trade of City of Chicago v. Price, 213 Fed. Rep. 336; McDearmott Commission Co. v. Board of Trade of City of Chicago, 146 Fed. Rep. 961; Board of Trade of City of Chicago v. Cella Commission Co., 145 Fed. Rep. 28; National Tel. News Co. v. Western Union Tel. Co., 119 Fed. Rep. 294; Illinois Commission Co. v. Cleveland Tel. Co., 119 Fed. Rep. 301; Board of Trade of Chicago v. Hadden-Krull Co., 109 Fed. Rep. 705; Cleveland Tel. Co. v. Stone, 105 Fed. Rep. 794., Board of Trade of City of Chicago v. Thomson Commission Co., 103 Fed. Rep. 902; Kiernan v. Manhattan Quotation Telegraph Co., 50 How. Pr. 194. The bill in F.W. Dodge Co. v. Construction Information Co., 183 Mass. 62, was expressly based on breach of contract or of trust. It has been suggested that a board of trade has a right of property in its quotations because the facts reported originated in its exchange. The point has been mentioned several times in the cases, but no great importance seems to have been attached to it.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

The leading English case, Exchange Telegraph Co. v. Gregory & Co., [1896] 1 Q.B. 147, is also rested clearly upon a breach of contract or trust, although there is some [*253] reference to a general property right. The later English cases seem to have rightly understood the basis of the decision, and they have not sought to extend it further than was intended. Indeed, we find the positive suggestion in some cases that the only ground for relief is the manner in which knowledge of the report of the news was acquired. n1

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

n1 In Exchange Telegraph Co., Ltd., v. Howard, 22 Times Law Rep. 375, 377, it is intimated that it would be perfectly permissible for the defendant to take the score from a newspaper supplied by the plaintiff and publish it. And it is suggested in Exchange Telegraph Co., Ltd., v. Central News, Ltd., [1897] 2 Ch. 48, 54, that there are sources from which the defendant might be able to get the information collected by the plaintiff and publish it without committing any wrong. Copinger, Law or Copyright, 5th ed., p. 35, explains the Gregory Case on the basis of the breach of confidence involved. Richardson, Law of Copyright, p. 39, also inclines to put the case "on the footing of implied confidence."

If the news involved in the case at bar had been posted in violation of any agreement between the Associated Press and its members, questions similar to those in the "ticker" cases might have arisen. But the plaintiff does not contend that the posting was wrongful or that any papers were wrongfully issued by its subscribers. On the contrary it is conceded that both the bulletins and the papers were issued in accordance with the regulations of the plaintiff. Under such circumstances, for a reader of the papers purchased in the open market, or a leader of the bulletins publicly posted, to procure and use gainfully, information therein contained, does not involve inducing anyone to commit a breach either of contract or of trust, or committing or in any way abetting a breach of confidence.

Second: Plaintiff also relied upon the cases which hold that the common-law right of the producer to prohibit copying is not lost by the private circulation of a literary composition, the delivery of lecture, the exhibition [*254] of a painting, or the performance of a dramatic or musical composition. n1 These [***78] cases rest upon the ground that the common [**227] law recognizes such productions as property which, despite restricted communication, continues until there is a dedication to the public under the copyright statutes or otherwise. But they are inapplicable for two reasons. (1) At common law, as under the copyright acts, intellectual productions are entitled to such protection only if there is underneath something evincing the mind of a creator or originator, however modest the requirement. The mere record of isolated happenings, whether in words or by photographs not involving artistic skill, are denied such protection. n2 (2) At common law, as under the copyright acts, the element in intellectual productions which secures such protection is not the knowledge, truths, ideas, or emotions which the composition expresses, but the form or sequence in which they are expressed; that is, "some new collocation of visible or audible points, -- of lines, colors, sounds, or [*255] words." See White-Smith Music Co. v. Apollo Co., 209 U.S. 1, 19; Kalem Co. v. Harper Brothers, 222 U.S. 55, 63. An author's theories, suggestions, and speculations, or the systems, plans, methods, and arrangements of an originator, derive no such protection from the statutory copyright of the book in which they are set forth.; n1 and they are likewise denied such protection at common law. n2

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

n1 Ferris v. Frohman, 223 U.S. 424; American Tobacco Co. v. Werckmeister, 207 U.S. 284, 299; Universal Film Mfg. Co. v. Copperman, 218 Fed. Rep. 577; Werckmeister v. American Lithographic Co., 134 Fed. Rep. 321; Drummond v. Altemus, 60 Fed. Rep. 338; Boucicault v. Hart, 13 Blatchf. 47; Fed. Cas. No. 1692; Crowe v. Aiken, 2 Biss. 208; Fed. Cas. No. 3441; Boucicault v. Fox, 5 Blatchf. 87; Fed. Cas. No. 1691; Bartlett v. Crittenden, 5 McLean, 32; Fed. Cas. No. 1076; Bartlette v. Crittenden, 4 McLean, 300; Fed. Cas. No. 1082; Tompkins v. Halleck, 133 Mass. 32; Aronson v. Baker, 43 N.J. Eq. 365; Caird v. Sime, L.R. 12 App. Cas. 326; Nicols v. Pitman, L.R. 26 Ch. D. 374; Abernethy v. Hutchinson, 3 L.J. (O.S.) Ch. 209; Turner v. Robinson, 10 Ir. Eq. Rep. 121.

n2 Compare Bleistein v. Donaldson Lithograping Co., 188 U.S. 239, 250; Higgins v. Keuffel, 140 U.S. 428, 432., Burrow-Giles Lithorgraphic Co. v. Sarony, 111 U.S. 53, 58-60., Baker v. Selden, 101 U.S. 99, 105, 106; Chayton v. Stone, 2 Paine, 382; Fed. Cas. No. 2872; National Tel. News Co. v. Western Union Tel. Co., 119 Fed. Rep. 294, 296-298; Banks Law Pub. Co. v. Lawyers' Co-operative Pub. Co., 169 Fed. Rep. 386, 391.

n1 Baker v. Selden, 101 U.S. 99; Perris v. Hexamer, 99 U.S. 674; Barnes v. Miner, 122 Fed. Rep. 480, 491; Burnell v. Chown, 69 Fed. Rep. 993; Tate v. Fullbrook, [1908] 1 K.B. 821; Chilton v. Progress Printing & Publishing Co., [1985] 2 Ch. 29, 34; Kendrick & Co. v. Lawrence & Co., L.R. 25 Q.B.D. 99; Pike v. Nicholas, L.R. 5 Ch. App. 251.

n2 Bristol v. Equitable Life Assurance Society 132 N.Y. 264; Haskins v. Ryan, 71 N.J. Eq. 575.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

That news is not property in the strict sense is illustrated by the case of Sports and General Press Agency, Ltd., v. "Our Dogs" Publishing Co., Ltd., [1916] 2 K.B. 880, where the plaintiff, the assignee of the right to photograph the exhibits at a dog show, was refused an injunction against defendant who had also taken pictures of the show and was publishing them. The court said that, except in so far as the possession of the land occupied by the show enabled the proprietors to exclude people or permit them on condition that they agree not to take photographs (which condition was not imposed in that case), the proprietors had no exclusive right to photograph the show and could therefore grant no such right. And, it was further stated that, at any rate, no matter what conditions might be imposed upon those entering the grounds, if the defendant had been on top of a house or in some position where he could photograph the show without interfering with the physical property of the plaintiff, the plaintiff would have no right to stop him. If, when the plaintiff creates the event recorded, he is not entitled to the exclusive first publication of the [*256] news (in that case a photograph) of the event, no reason can be shown why he should be accorded such protection as to events which he simply records and transmits to other parts of the world, though with great expenditure of time and money.

Third: If news be treated as possessing the characteristics not of a trade secret, but of literary property, then the earliest issue of a paper of general circulation or the earliest public posting of [**228] a bulletin which embodies such news would, under the established rules governing literary property, operate as a publication, and all property in the news would then cease. Resisting this conclusion, plaintiff relied upon the cases which hold that uncopyrighted intellectual and artistic property survives private circulation or a restricted publication; and it contended that in each issue of each paper, a restriction is to be implied that the news shall not be used gainfully in competition with the Associated Press or any of its members. There is no basis for such an implication. But it is also well settled that where the publication is in fact a general one, even express words of restriction upon use are inoperative. In other words, a general publication is effective to dedicate literary property to the public, regardless of the actual intent of its owner. n1 In the cases dealing with lectures, dramatic and musical performances, and art exhibitions, n2 upon which plaintiff relied, there was no general publication in print comparable to the issue of daily newspapers or the unrestricted public posting of bulletins. The principles governing those cases differ more or less in application, if not in theory, from the principles governing the issue of printed copies; [*257] and in so far as they [***79] do differ, they have no application to the case at bar.

n1 Jewelers' Mercantile Agency v. Jewelers' Publishing Co., 155 N.Y. 241; Wagner v. Conried, 125 Fed. Rep. 798, 801., Larrowe-Loisette v. O'Loughlin, 88 Fed. Rep. 896.

n2 See cases in note 1, p. 254, supra; Richardson, Law of Copyright, p. 128.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

Fourth: Plaintiff further contended that defendant's practice constitutes unfair competition, because there is "appropriation without cost to itself of values created by" the plaintiff; and it is upon this ground that the decision of this court appears to be based. To appropriate and use for profit, knowledge and ideas produced by other men, without making compensation or even acknowledgment, may be inconsistent with a finer sense of propriety; but, with the exceptions indicated above, the law has heretofore sanctioned the practice. Thus it was held that one may ordinarily make and sell anything in any form, may copy with exactness that which another has produced, or may otherwise use his ideas without his consent and without the payment of compensation, and yet not inflict a legal injury; n1 and that ordinarily one is at perfect liberty to find out, if he can be lawful means, trade secrets of another, however valuable, and then use the knowledge so acquired gainfully, although it cost the original owner much in effort and in money to collect or produce.n2

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

n1 Flagg Manufacturing Co. v. Holway, 178 Massachusetts, 83; Bristol v. Equitable Life Assurance Society, 132 N.Y. 264; Keystone Type Foundry v. Portland Publishing Co., 186 Fed. Rep. 690.

n2 Chadwick v. Covell, 151 Massachusetts, 190; Tabor v. Hoffman, 118 N.Y. 30, 36; James v. James, L.R. 13 Eq. 421. Even when knowledge is compiled, as in a dictionary, and copyrighted, the suggestions and sources therein may be freely used by a later compiler. The copyright protection merely prevents his taking the ultimate data while avoiding the labor and expense involved in compiling them. Pike v. Nicholas, L.R. 5 Ch. App. 251; Morris v. Wright, L.R. 5 Ch. App. 279; Edward Thompson Co. v. American Law Book Co., 122 Fed. Rep. 922; West Pub. Co. v. Edward Thompson Co., 176 Fed. Rep. 833. It is assumed that in the absence of copyright, the data compiled could be freely used. See Morris v. Ashbee, L.R. 7 Eq. 34, 40. Compare also Chilton v. Progress Printing & Publishing Co., [1895] Ch. 29.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

[*258] Such taking and gainful use of a product of another which, for reasons of public policy, the law has refused to endow with the attributes of property, does not become unlawful because the product happens to have been taken from a rival and is used in competition with him. The unfairness in competition which hitherto has been recognized by the law as a basis for relief, lay in the manner or means of conducting the business; and the manner or means held legally unfair, involves either fraud or force or the doing of acts otherwise prohibited by law. In the "passing off" cases (the typical and mostcommon case of unfair competition), the wrong consists in fraudulently representing by word or act that defendant's goods are those of plaintiff. See Hanover Milling Co. v. Metcalf, 240 U.S. 403, 412-413. In the other cases, the diversion of trade was effected through physical or moral coercion, or by inducing breaches of contract or of trust or by enticing away employees. In some others, called cases of simulated competition, relief was granted because defendant's purpose was [**229] unlawful; namely, not competition but deliberate and wanton destruction of plaintiff's business. n1

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

n1 "Trust Laws & Unfair Competition" (U.S. Bureau of Corporations, March 15, 1915), pp. 301-331, 332-461; Nims, Unfair Competition & Trade-Marks, c. XIX; Sperry & Hutchinson Co. v. Pommer, 199 Fed. Rep. 309, 314; Racine Paper Goods Co. v. Dittgen, 171 Fed. Rep. 631; Schonwald v. Ragains, 32 Oklahoma, 223; Attorney General v. National Cash Register Co., 182 Michigan, 99; Witkop & Holmes Co. v. Great Atlantic & Pacific Tea Co., 124 N.Y. Supp. 956, 958; Dunshee v. Standard Oil Co., 152 Iowa, 618; Tuttle v. Buck, 107 Minnesota, 145.

The cases of Fonotipia, Limited, v. Badley, 171 Fed. Rep. 951, and Prest-O-Lite Co. v. Davis, 209 Fed. Rep. 917, which were strongly relied upon by the plaintiff, contain expressions indicating rights possibly broad enough to sustain the injunction in the case at bar; but both cases involve elements of "passing off." See also Prest-O-Lite Co. v. Davis, 215 Fed. Rep. 349; Searchlight Gas Co. v. Prest-O-Lite Co., 215 Fed. Rep. 692; Prest-O-Lite Co. v. H.W. Bogen, Inc., 209 Fed. Rep. 915; Prest-O-Lite Co. v. Avery Lighting Co., 161 Fed. Rep. 648. In Prest-O-Lite Co. v. Auto Acetylene Light Co., 191 Fed. Rep. 90, the bill was dismissed on the ground that no deception was shown.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

[*259] That competition is not unfair in a legal sense, merely because the profits gained are unearned, even if made at the expense of a rival, is shown by many cases besides those referred to above. He who follows the pioneer into a new market, or who engages in the manufacture of an article newly introduced by another, seeks profits due largely to the labor and expense of the first adventurer; but the law sanctions, indeed encourages, the pursuit.n1 He who makes a city known through his product, must submit to sharing the resultant trade with others who, perhaps for that reason, locate there later. Canal Co. v. Clark, 13 Wall. 311; Elgin National Watch Co. v. Illinois Watch Co., 179 U.S. 665, 673. He who has made his name a guaranty of quality, protests in vain when another with the same name engages, perhaps for that reason, in the same lines of business; provided, precaution is taken to prevent the public from being deceived into the belief that what he is selling was made by his competitor. One bearing a name made famous by another is permitted to enjoy the unearned benefit which necessarily flows from such use, even though the use proves harmful to him who gave the name value. Brown Chemical Co. v. Meyer, 139 U.S. 540, 544; Howe [***80] Scale Co. v. Wyckoff, Seamans & Benedict, 198 U.S. 118; Donnell v. Herring-Hall-Marvin Safe Co., 208 U.S. 267; Waterman Co. v. Modern Pen Co., 235 U.S. 88. See Saxlehner v. Wagner, 216 U.S. 375.

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

n1 Magee Furnace Co. v. Le Barron, 127 Massachusetts, 115; Ricker v. Railway, 90 Maine, 395, 403.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

The means by which the International News Service obtains news gathered by the Associated Press is also clearly unobjectionable. It is taken from papers bought in the open market or from bulletins publicly posted. [*260] No breach of contract such as the court considered to exist in Hitchman Coal & Coke Co. v. Mitchell, 245 U.S. 229, 254; or of trust such as was present in Morison v. Moat, 9 Hare, 241; and neither fraud nor force, is involved. The manner of use is likewise unobjectionable. No reference is made by word or by act to the Associated Press, either in transmitting the news to subscribers or by them in publishing it in their papers. Neither the International News Service nor its subscribers is gaining or seeking to gain in its business a benefit from the reputation of the Associated Press. They are merely using its product without making compensation. See Bamforth v. Douglass Post Card & Machine Co., 158 Fed. Rep. 355; Tribune Co. of Chicage v. Associated Press, 116 Fed. Rep. 126. That, they have a legal right to do; because the product is not property, and they do not stand in any relation to the Associated Press, either of contract or of trust, which otherwise precludes such use. The argument is not advanced by characterizing such taking and use a misappropriation.

It is also suggested, that the fact that defendant does not refer to the Associated Press as the source of the news may furnish a basis for the relief. But the defendant and its subscribers, unlike members of the Associated Press, were under no contractual obligation to disclose the source of the news; and there is no rule of law requiring acknowledgment to be [**230] made where uncopyrighted matter is reproduced. The International News Service is said to mislead its subscribers into believing that the news transmitted was originally gathered by it and that they in turn mislead their readers. There is, in fact, no representation by either of any kind. Sources of information are sometimes given because required by contract; sometimes because naming the source gives authority to an otherwise incredible statement; and sometimes the source is named because the agency does not wish to take the [*261] responsibility itself of giving currency to the news. But no representation can properly be implied from omission to mention the source of information except that the International News Service is transmitting news which it believes to be credible.

Nor is the use made by the International News Service of the information taken from papers or bulletins of Associated Press members legally objectionable by reason of the purpose for which it was employed. The acts here complained of were not done for the purpose of injuring the business of the Associated Press. Their purpose was not even to divert its trade, or to put it at a disadvantage by lessening defendant's necessary expenses. The purpose was merely to supply subscribers of the International News Service promptly with all available news. The suit is, as this court declares, in substance one brought for the benefit of the members of the Associated Press, who would be proper, and except for their number perhaps necessary, parties; and the plaintiff conducts the suit as representing their interest. It thus appears that the protection given by the injunction is not actually to the business of the complainant news agency; for this agency does not sell news nor seek to earn profits, but is a mere instrumentality by which 800 or more newspapers collect and distribute news.

It is these papers severally which are protected; and the protection afforded is not from competition of the defendant, but from possible competition of one or more of the 400 other papers which receive the defendant's service. Furthermore, the protection to these Associated Press members consists merely in denying to other papers the right to use, as news, information which, by authority of all concerned, had theretofore been given to the public by some of those who joined in gathering it; and to which the law denies the attributes of property. There is in defendant's purpose nothing on which to base a claim for relief.

[*262] It is further said that, while that for which the Associated Press spends its money is too fugitive to be recognized as property in the common-law courts, the defendant cannot be heard to say so in a court of equity, where the question is one of unfair competition. The case presents no elements of equitable title or of breach of trust. The only possible reason for resort to a court of equity in a case like this is that the remedy which the law gives is inadequate. If the plaintiff has no legal cause of action, the suit necessarily fails. Levy v. Walker, L.R. 10 Ch. D. 436, 449. There is nothing in the situation of the parties which can estop the defendant from saying so.

Fifth: The great development of agencies now furnishing country-wide distribution of news, the vastness of our territory, and improvements in the means of transmitting intelligence, have made it possible for a news agency or newspapers to obtain, without paying compensation, the fruit of another's efforts and to use news so obtained [***81] gainfully in competition with the original collector. The injustice of such action is obvious. But to give relief against it would involve more than the application of existing rules of law to new facts. It would require the making of a new rule in analogy to existing ones. The unwritten law possesses capacity for growth; and has often satisfied new demands for justice by invoking analogies or by expanding a rule or principle. This process has been in the main wisely applied and should not be discontinued. Where the problem is relatively simple, as it is apt to be when private interests only are involved, it generally proves adequate. But with the increasing complexity of society, the public interest tends to become omnipresent; and the problems presented by new demands for justice cease to be simple. Then the creation or recognition by courts of a new private right may work serious injury to the general public, unless the [*263] boundaries of the right are definitely established and wisely guarded. In order to reconcile the new private right with the public interest, it may be necessary to prescribe limitations and rules for its enjoyment; and also to provide administrative machinery for enforcing the rules. It is largely for this reason that, in the effort to meet the [**231] many new demands for justice incident to a rapidly changing civilization, resort to legislation has latterly been had with increasing frequency.

The rule for which the plaintiff contends would effect an important extension of property rights and a corresponding curtailment of the free use of knowledge and of ideas; and the facts of this case admonish us of the danger involved in recognizing such a property right in news, without imposing upon news-gatherers corresponding obligations. A large majority of the newspapers and perhaps half the newspaper readers of the United States are dependent for their news of general interest upon agencies other than the Associated Press. The channel through which about 400 of these papers received, as the plaintiff alleges, "a large amount of news relating to the European war of the greatest importanceand of intense interest to the newspaper reading public" was suddenly closed. The closing to the International News Service of these channels for foreign news (if they were closed) was due not to unwillingness on its part to pay the cost of collecting the news, but to the prohibitions imposed by foreign governments upon its securing news from their respective countries and from using cable or telegraph lines running therefrom. For aught that appears, this prohibition may have been wholly undeserved; and at all events the 400 papers and their readers may be assumed to have been innocent. For aught that appears, the International News Service may have sought then to secure temporarily by arrangement with the Associated Press the latter's foreign news service. For aught that [*264] appears, all of the 400 subscribers of the International News Service would gladly have then become members of the Associated Press, if they could have secured election thereto. n1 It is possible, also, that a large part of the readers of these papers were so situated that they could not secure prompt access to papers served by the Associated Press. The prohibition of the foreign governments might as well have been extended to the channels through which news was supplied to the more than a thousand other daily papers in the United States not served by the Associated Press; and a large part of their readers may also be so located that they can not procure prompt access to papers served by the Associated Press.

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

n1 According to the by-laws of the Associated Press no one can be elected a member without the affirmative vote of at least four-fifths of all the members of the corporation or the vote of the directors. Furthermore, the power of the directors to admit anyone to membership may be limited by a right of protest to be conferred upon individual members. See By-laws, Article III, @ 6. "The members of this Corporation may, by an affirmative vote of seven-eighths of all the members, confer upon a member (with such limitations as may be at the time prescribed) a right of protest against the admission of new members by the Board of Directors. The right of protest, within the limits specified at the time it is conferred, shall empower the member holding it to demand a vote of the members of the Corporation on all applications for the admission of new members within the district for which it is conferred except as provided in Section 2 of this Article."

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

A legislature, urged to enact a law by which one news agency or newspaper may prevent appropriation of the fruits of its labors by another, would consider such facts and possibilities and others which appropriate enquiry might disclose. Legislators might conclude that it was impossible to put an end to the obvious injustice involved in such appropriation of news, without opening the door to other evils, greater than that sought to be remedied. Such appears to have been the opinion of our Senate which reported unfavorably a bill to give news a few [*265] hours' protection; n1 and which ratified, on February [***82] 15, 1911, the convention adopted at the Fourth International American Conference; n2 [**232] and such was evidently the view also of the signatories to the Internatinal Copyright Union Of November 13, 1908; n3 as both these conventions expressly exclude news from copyright protection.

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - -

n1 Senate Bill No. 1728, 48th Cong., 1st sess. The bill provides:

"That any daily or weekly newspaper, or any association of daily or weekly newspapers, published in the United States or any of the Territories thereof, shall have the sole right to print, issue, and sell, for the term of eight hours, dating from the hour of going to press, the contents of said daily or weekly newspaper, or the collected news of said newspaper association, exceeding one hundred words.

"Sec. 2. That for any infringement of the copyright granted by the first section of this act the party injured may sue in any court of competent jurisdiction and recover in any proper action the damages sustained by him from the person making such infringement, together with the costs of suit."

It was reported on April 18, 1884, by the Committee on the Library, without amendment, and that it ought not to pass. Journal of the Senate, 48th Cong., 1st sess., p. 548. No further action was apparently taken on the bill.

When the copyright legislation of 1909, finally enacted as Act of March 4, 1909, c. 320, 35 Stat. 1075, was under consideration, there was apparently no attempt to include news among the subjects of copyright. Arguments before the Committees on Patents of the Senate and House of Representatives on Senate Bill No. 6330 and H. R. Bill No. 19853, 59th Cong., 1st sess., June 6, 7, 8, and 9, and December 7, 8, 10, and 11, 1906; Hearings on Pending Bills to Amend and Consolidate Acts Respecting Copyright, March 26, 27 and 28, 1908.

n2 38 Stat. 1785, 1789, Article 11.

n3 Bowker, Copyright: Its History and its Law, pp. 330, 612, 613. See the similar provisions in the Berne Convention (1886) and the Paris Convention (1896). Id., pp. 612, 613.

In 1898 Lord Herschell introduced in Parliament a bill, @ 11 of which provides: "Copyright in respect of a newspaper shall apply only to such parts of the newspaper as are compositions of an original literary character, to original illustrations therein, and to such news and information as have been specially and independently obtained." (Italics ours.) House of Lords, Sessional Papers, 1898, vol. 3, Bill No. 21. Birrell, Copyright in Books, p. 210. But the bill was not enacted, and in the English law as it now stands there is no provision giving even a limited copyright in news as such. Act of December 16, 1911, 1 and 2 Geo. V. c. 46.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

[*266] Or legislators dealing with the subject might conclude, that the right to news values should be protected to the extent of permitting recovery of damages for any unauthorized use, but that protection by injunction should be denied, just as courts of equity ordinarily refuse (perhaps in the interest of free speech) to restrain actionable libels, n1 and for other reasons decline to protect by injunction mere political rights; n2 and as Congress has prohibited courts from enjoining the illegal assessment or collection of federal taxes. n3 If a legislature concluded to recognize property in published news to the extent of permitting recovery at law, it might, with a view to making the remedy more certain and adequate, provide a fixed measure of damages, as in the case of copyright infringement.n4

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

n1 Boston Diatite Co. v. Florence Mfg. Co., 114 Massachusetts, 69; Prudential Assurance Co. v. Knott, L.R. 10 Ch. App. 142.

n2 Giles v. Harris, 189 U.S. 475. Compare Swafford v. Templeton, 185 U.S. 487; Green v. Mills, 69 Fed. Rep. 852, 859.

n3 Revised Statutes, @ 3224; Snyder v. Marks, 109 U.S. 189; Dodge v. Osborn, 240 U.S. 118.

n4 Act of March 4, 1909, @ 25, c. 320, 35 Stat. 1075, 1081, provides as to the liability for the infringement of a copyright, that, "in the case of a newspaper reproduction of a copyrighted photograph such damages shall not exceed the sum of two hundred dollars nor be less than the sum of fifty dollars"; and that in the case of infringement of a copyrighted newspaper the damages recoverable shall be one dollar for every infringing copy, but shall not be less than $ 250 nor more than $ 5,000.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

Or again, a legislature might conclude that it was unwise to recognize even so limited a property right in published news as that above indicated; but that a news agency should, on some conditions, be given full protection [*267] of its business; and to that end a remedy by injunction as well as one for damages should be granted, where news collected by it is gainfully used without permission. If a legislature concluded, (as at least one court has held, New York & Chicago Grain & Stock Exchange v. Board of Trade, 127 Illinois, 153) that under certain circumstances news-gathering is a business affected with a public interest, it might declare that, in such cases, news should be protected against appropriation, only if the gatherer assumed the obligation of supplying it, at reasonable rates and without discrimination, to all papers which applied therefor. If legislators reached that conclusion, they would probably go further, and prescribe the conditions under which and the extent to which the protection should be afforded; and they might also provide the administrative machinery necessary for ensuring to the public, the press, and the news agencies, full enjoyment of the rights so conferred.

Courts are ill-equipped to make the investigations which should precede a determination of the limitations which should be set upon any property right in news or of the circumstances under which news gathered by a private agency should be deemed affected with a public interest. Courts would be powerless to prescribe the detailed regulations essential to full enjoyment of the rights conferred or to introduce the machinery required for enforcement of such regulations. Considerations such as these [**233] should lead us to decline to establish a new rule of law in the effort to redress a newly-disclosed wrong, although the propriety of some remedy appears to be clear.
 
 
 
 
 
 
 
 



 
 
 
 III

Supplementary Cases on Intellectual Property 

Intellectual Property & the Constitution

Congressional Power -- The Trademark Cases

100 U.S. 82

10 Otto 82, 25 L.Ed. 550

(Cite as: 100 U.S. 82) 

TRADE-MARK CASES.

UNITED STATES

v.

STEFFENS;

UNITED STATES

v.

WITTEMANN;

UNITED STATES

v.

JOHNSON.

Supreme Court of the United States

October Term, 1879

THE first two cases were brought here on certificates of division in opinion between the judges of the Circuit Court of the United States for the Southern District of New York. The last was brought here on a certificate of division on opinion between the judges of the Circuit Court of the United States for the Southern District of Ohio.

Steffens was indicted under the fourth and fifth sections of an act of Congress entitled 'An Act to punish the counterfeiting of trade-marks and the sale or dealing in of counterfeit trade-mark goods,' approved Aug. 14, 1876, 19 Stat. 141.

The first count in the indictment charges him with knowingly and wilfully having in his possession counterfeits and colorable imitations of the trade- marks of G. H. Mumm & Co., of Rheims, France, manufacturers and sellers of champagne wine.

The second count charges him with knowingly and wilfully selling counterfeited representations and colorable imitations of the trade-mark of said G. H. Mumm & Co.*83

***

***

MR. JUSTICE MILLER delivered the opinion of the court.

The three cases whose titles stand at the head of this opinion are criminal prosecutions for violations of what is known as the trade-mark legislation of Congress. The first two are indictments in the southern district of New York, and the last is an information in the southern district of Ohio. In all of them the judges of the circuit courts in which they are pending have certified to a difference of opinion on what is substantially the same question; namely, are the acts of Congress on the subject *92of trade-marks founded on any rightful authority in the Constitution of the United States?

The entire legislation of Congress in regard to trade-marks is of very recent origin. It is first seen in sects. 77 to 84, inclusive, of the act of July 8, 1870, entitled 'An Act to revise, consolidate, and amend the statutes relating to patents and copyrights.' 16 Stat. 198. The part of this act relating to trade-marks is embodied in chap. 2, tit. 60, sects. 4937 to 4947, of the Revised Statutes.

It is sufficient at present to say that they provide for the registration in the Patent Office of any device in the nature of a trade-mark to which any person has by usage established an exclusive right, or which the person so registering intends to appropriate by that act to his exclusive use; and they make the wrongful use of a trade-mark, so registered, by any other person, without the owner's permission, a cause of action in a civil suit for damages. Six years later we have the act of Aug. 14, 1876 (19 Stat. 141), punishing by fine and imprisonment the fraudulent use, sale, and counterfeiting of trade- marks registered in pursuance of the statutes of the United States, on which the informations and indictments are founded in the cases before us.

The right to adopt and use a symbol or a device to distinguish the goods or property made or sold by the person whose mark it is, to the exclusion of use by all other persons, has been long recognized by the common law and the chancery courts of England and of this country, and by the statutes of some of the States. It is a property right for the violation of which damages may be recovered in an action at law, and the continued violation of it will be enjoined by a court of equity, with compensation for past infringement. This exclusive right was not created by the act of Congress, and does not now depend upon it for its enforcement. The whole system of trade-mark property and the civil remedies for its protection existed long anterior to that act, and have remained in full force since its passage.

There propositions are so well understood as to require neither the citation of authorities nor an elaborate argument to prove them.*93

As the property in trade-marks and the right to their exclusive use rest on the laws of the States, and, like the great body of the rights of person and of property, depend on them for security and protection, the power of Congress to legislate on the subject, to establish the conditions on which these rights shall be enjoyed and exercised, the period of their duration, and the legal remedies for their enforcement, if such power exist at all, must be found in the Constitution of the United States, which is the source of all powers that Congress can lawfully exercise.

In the argument of these cases this seems to be conceded, and the advocates for the validity of the acts of Congress on this subject point to two clauses of the Constitution, in one or in both of which, as they assert, sufficient warrant may be found for this legislation.

The first of these is the eighth clause of sect. 8 of the first article. That section, manifestly intended to be an enumeration of the powers expressly granted to Congress, and closing with the declaration of a rule for the ascertainment of such powers as are necessary by way of implication to carry into efficient operation those expressly given, authorizes Congress, by the clause referred to, 'to promote the progress of science and useful arts, by securing for limited times, to authors and inventors, the exclusive right to their respective writings and discoveries.'

As the first and only attempt by Congress to regulate the right of trade-marks is to be found in the act of July 8, 1870, to which we have referred, entitled 'An Act to revise, consolidate, and amend the statutes relating to patents and copyrights,' terms which have long since become technical, as referring, the one to inventions and the other to the writings of authors, it is a reasonable inference that this part of the statute also was, in the opinion of Congress, an exercise of the power found in that clause of the Constitution. It may also be safely assumed that until a critical examination of the subject in the courts became necessary, it was mainly if not wholly to this clause that the advocates of the law looked for its support.

Any attempt, however, to identify the essential characteristics of a trade- mark with inventions and discoveries in the *94 arts and sciences, or with the writings of authors, will show that the effort is surrounded with insurmountable difficulties.

The ordinary trade-mark has no necessary relation to invention or discovery. The trade-mark recognized by the common law is generally the growth of a considerable period of use, rather than a sudden invention. It is often the result of accident rather than design, and when under the act of Congress it is sought to establish it by registration, neither originality, invention, discovery, science, nor art is in any way essential to the right conferred by that act. If we should endeavor to classify it under the head of writings of authors, the objections are equally strong. In this, as in regard to inventions, originality is required. And while the word writings may be liberally construed, as it has been, to include original designs for engravings, prints, &c., it is only such as are original, and are founded in the creative powers of the mind. The writings which are to be protected are the fruits of intellectual labor, embodied in the form of books, prints, engravings, and the like. The trade-mark may be, and generally is, the adoption of something already in existence as the distinctive symbol of the party using it. At common law the exclusive right to it grows out of its use, and not its mere adoption. By the act of Congress this exclusive right attaches upon registration. But in neither case does it depend upon novelty, invention, discovery, or any work of the brain. It requires no fancy or imagination, no genius, no laborious thought. It is simply founded on priority of appropriation. We look in vain in the statute for any other qualification or condition. If the symbol, however plain, simple, old, or well-known, has been first appropriated by the claimant as his distinctive trade-mark, he may by registration secure the right to its exclusive use. While such legislation may be a judicious aid to the common law on the subject of trade-marks, and may be within the competency of legislatures whose general powers embrace that class of subjects, we are unable to see any such power in the constitutional provision concerning authors and inventors, and their writings and discoveries.

The other clause of the Constitution supposed to confer the requisite authority on Congress is the third of the same section, *95 which, read in connection with the granting clause, is as follows: 'The Congress shall have power to regulate commerce with foreign nations, and among the several States, and with the Indian tribes.'

The argument is that the use of a trade-mark--that which alone gives it any value--is to identify a particular class or quality of goods as the manufacture, produce, or property of the person who puts them in the general market for sale; that the sale of the article so distinguished is commerce; that the trade-mark is, therefore, a useful and valuable aid or instrument of commerce, and its regulation by virtue of the clause belongs to Congress, and that the act in question is a lawful exercise of this power.

Every species of property which is the subject of commerce, or which is used or even essential in commerce, is not brought by this clause within the control of Congress. The barrels and casks, the bottles and boxes in which alone certain articles of commerce are kept for safety and by which their contents are transferred from the seller to the buyer, do not thereby become subjects of congressional legislation more than other property. Nathan v. Louisiana, 8 How. 73. In Paul v. Virginia (8 Wall. 168), this court held that a policy of insurance made by a corporation of one State on property situated in another, was not an article of commerce, and did not come within the purview of the clause we are considering. 'They are not,' says the court, 'commodities to be shipped or forwarded from one State to another, and then put up for sale.' On the other hand, in Almy v. State of California (24 How. 169), it was held that a stamp duty imposed by the legislature of California on bills of lading for gold and silver transported from any place in that State to another out of the State, was forbidden by the Constitution of the United States, because such instruments being a necessity to the transaction of commerce, the duty was a tax upon exports.

The question, therefore, whether the trade-mark bears such a relation to commerce in general terms as to bring it within congressional control, when used or applied to the classes of commerce which fall within that control, is one which, in the present case, we propose to leave undecided. We adopt this *96 course because when this court is called on in the course of the administration of the law to consider whether an act of Congress, or of any other department of the government, is within the constitutional authority of that department, a due respect for a co-ordinate branch of the government requires that we shall decide that it has transcended its powers only when that is so plain that we cannot avoid the duty.

In such cases it is manifestly the dictate of wisdom and judicial propriety to decide no more than is necessary to the case in hand. That such has been the uniform course of this court in regard to statutes passed by Congress will readily appear to any one who will consider the vast amount of argument presented to us assailing them as unconstitutional, and he will count, as he may do on his fingers, the instances in which this court has declared an act of Congress void for want of constitutional power.

Governed by this view of our duty, we proceed to remark that a glance at the commerce clause of the Constitution discloses at once what has been often the subject of comment in this court and out of it, that the power of regulation there conferred on Congress is limited to commerce with foreign nations, commerce among the States, and commerce with the Indian tribes. While bearing in mind the liberal construction, that commerce with foreign nations means commerce between citizens of the United States and citizens and subjects of foreign nations, and commerce among the States means commerce between the individual citizens of different States, there still remains a very large amount of commerce, perhaps the largest, which, being trade or traffic between citizens of the same State, is beyond the control of Congress.

When, therefore, Congress undertakes to enact a law, which can only be valid as a regulation of commerce, it is reasonable to expect to find on the face of the law, or from its essential nature, that it is a regulation of commerce with foreign nations, or among the several States, or with the Indian tribes. If not so limited, it is in excess of the power of Congress. If its main purpose be to establish a regulation applicable to all trade, to commerce at all points, especially if it be apparent that it is designed to govern the commerce wholly between citizens of *97 the same State, it is obviously the exercise of a power not confided to Congress.

We find no recognition of this principle in the chapter on trade-marks in the Revised Statutes. We would naturally look for this in the description of the class of persons who are entitled to register a trade-mark, or in reference to the goods to which it should be applied. If, for instance, the statute described persons engaged in a commerce between the different States, and related to the use of trade-marks in such commerce, it would be evident that Congress believed it was acting under the clause of the Constitution which authorizes it to regulate commerce among the States. So if, when the trade-mark has been registered, Congress had protected its use on goods sold by a citizen of one State to another, or by a citizen of a foreign State to a citizen of the United States, it would be seen that Congress was at least intending to exercise the power of regulation conferred by that clause of the Constitution. But no such idea is found or suggested in this statute.

***

It has been suggested that if Congress has power to regulate trade-marks used in commerce with foreign nations and among the several States, these statutes shall be held valid in that class of cases, if no further. To this there are two objections: First, the indictments in these cases do not show that the trade-marks which are wrongfully used were trade-marks used in that kind of commerce. Secondly, while it may be true that when one part of a statute is valid and constitutional, and another part is unconstitutional and void, the court may enforce the valid part where they are distinctly separable so that each can stand alone, it is not within the judicial province to give to the words used by Congress a narrower meaning than they are manifestly intended to bear in order that crimes may be punished which are not described in language that brings them within the constitutional power of that body. **


Intellectual Property & the Constitution 

1st & 5th Amendments

107 S.Ct. 2971

97 L.Ed.2d 427, 55 USLW 5061, 3 U.S.P.Q.2d 1145

(Cite as: 483 U.S. 522, 107 S.Ct. 2971) 

SAN FRANCISCO ARTS & ATHLETICS, INC. and Thomas F. Waddell, Petitioners

v.

UNITED STATES OLYMPIC COMMITTEE and International Olympic Committee.

No. 86-270.

Supreme Court of the United States

Argued March 24, 1987.

Decided June 25, 1987.

Justice POWELL delivered the opinion of the Court.

In this case, we consider the scope and constitutionality of a provision of the Amateur Sports Act of 1978, 36 U.S.C. §§ 371-396, that authorizes the United States Olympic Committee to prohibit certain commercial and promotional uses of the word "Olympic."

Petitioner San Francisco Arts & Athletics, Inc. (SFAA), is a nonprofit California corporation. [FN1] The SFAA originally sought to incorporate under the name "Golden Gate Olympic Association," but was told by the California Department of Corporations that the word "Olympic" could not appear in a corporate title. App. 95. After its incorporation in 1981, the SFAA nevertheless began to promote the "Gay Olympic Games," using those words on its letterheads and mailings and in local newspapers. Ibid. The games were to be a 9-day event to begin in August 1982, in San Francisco, California. The SFAA expected athletes from hundreds of cities in this country and from cities all over the world. Id., at 402. The Games were to open with a ceremony "which will rival the traditional Olympic Games." Id., at 354. See id., at 402, 406, 425. A relay of over 2,000 runners would carry a torch from New York City across the country to Kezar Stadium in San Francisco. Id., at 98, 355, 357, 432. The final runner would enter the stadium with the "Gay Olympic Torch" and light the "Gay Olympic Flame." Id., at 357. The ceremony would continue with the athletes marching in uniform into the stadium behind their respective city flags. Id., at 354, 357, 402, 404, 414. Competition was to occur in 18 different contests, with the winners receiving gold, silver, and bronze medals. Id., at 354-355, 359, 407, 410. To cover the cost of the planned Games, the SFAA sold T-shirts, buttons, bumper stickers, and other merchandise bearing the title "Gay Olympic Games." Id., at 67, 94, 107, 113-114, 167, 360, 362, 427-428. [FN2]

FN1. The SFAA's president, Dr. Thomas F. Waddell, is also a petitioner.

FN2. The 1982 athletic event ultimately was held under the name "Gay Games I." App. 473. A total of 1,300 men and women from 12 countries, 27 States, and 179 cities participated. Id., at 475. The "Gay Games II" were held in 1986 with approximately 3,400 athletes participating from 17 countries. Brief for Respondents 8. The 1990 "Gay Games" are scheduled to occur in Vancouver, B.C. Ibid.

*526 Section 110 of the Amateur Sports Act (Act), 92 Stat. 3048, 36 U.S.C. § 380, grants respondent United States Olympic Committee (USOC) [FN3] the right to prohibit certain commercial and promotional uses of the word "Olympic" and various Olympic symbols. [FN4] In late December 1981, the executive *527 **2976 director of the USOC wrote to the SFAA, informing it of the existence of the Amateur Sports Act, and requesting that the SFAA immediately terminate use of the word "Olympic" in its description of the planned Games. The SFAA at first agreed to substitute the word "Athletic" for the word "Olympic," but, one month later, resumed use of the term. The USOC became aware that the SFAA was still advertising its Games as "Olympic" through a newspaper article in May 1982. In August, the USOC brought suit in the Federal District Court for the Northern District of California to enjoin the SFAA's use of the word "Olympic." The District Court granted a temporary restraining order and then a preliminary injunction. The Court of Appeals for the Ninth Circuit affirmed. After further proceedings, the District Court granted the USOC summary judgment and a permanent injunction.

FN3. The International Olympic Committee is also a respondent.

FN4. Section 110 of the Act, as set forth in 36 U.S.C. § 380, provides:

"Without the consent of the [USOC], any person who uses for the purpose of trade, to induce the sale of any goods or services, or to promote any theatrical exhibition, athletic performance, or competition--

"(1) the symbol of the International Olympic Committee, consisting of 5 interlocking rings;

"(2) the emblem of the [USOC], consisting of an escutcheon having a blue chief and vertically extending red and white bars on the base with 5 interlocking rings displayed on the chief;

"(3) any trademark, trade name, sign, symbol, or insignia falsely representing association with, or authorization by, the International Olympic Committee or the [USOC]; or

"(4) the words 'Olympic', 'Olympiad', 'Citius Altius Fortius', or any combination or simulation thereof tending to cause confusion, to cause mistake, to deceive, or to falsely suggest a connection with the [USOC] or any Olympic activity;

"shall be subject to suit in a civil action by the [USOC] for the remedies provided in the Act of July 5, 1946 (60 Stat. 427; popularly known as the Trademark Act of 1946 [Lanham Act] ) [15 U.S.C. § 1051 et seq.]

.***

The Court of Appeals affirmed the judgment of the District Court. 781 F.2d 733 (1986). It found that the Act granted the USOC exclusive use of the word "Olympic" without requiring the USOC to prove that the unauthorized use was confusing and without regard to the defenses available to an entity sued for a trademark violation under the Lanham Act, 60 Stat. 427, as amended, 15 U.S.C. § 1051 et seq. It did not reach the SFAA's contention that the USOC enforced its rights in a discriminatory manner, because the court found that the USOC is not a state actor bound by the constraints of the Constitution. The court also found that the USOC's "property righ[t] [in the word 'Olympic' and its associated *528 symbols and slogans] can be protected without violating the First Amendment." 781 F.2d, at 737. The court denied the SFAA's petition for rehearing en banc. Three judges dissented, finding that the panel's interpretation of the Act raised serious First Amendment issues. 789 F.2d 1319, 1326 (1986).

We granted certiorari, 479 U.S. 913, 107 S.Ct. 312, 93 L.Ed.2d 286 (1986), to review the issues of statutory and constitutional interpretation decided by the Court of Appeals. We now affirm.

******

*531 III

This Court has recognized that "[n]ational protection of trademarks is desirable ... because trademarks foster competition and the maintenance of quality by securing to the producer the benefits of good reputation."

***

[3][4][5] The protection granted to the USOC's use of the Olympic words and symbols differs from the normal trademark protection in two respects: the USOC need not prove that a contested use is likely to cause confusion, and an unauthorized user of the word does not have available the normal statutory defenses. [FN6] The SFAA argues, in effect, that the differences between the Lanham Act and § 110 are of constitutional dimension. First, the SFAA contends that the word "Olympic" is a generic [FN7] word that could not gain trademark protection under the Lanham Act. The SFAA argues that this *532 prohibition is constitutionally required and thus that the First Amendment prohibits Congress from granting a trademark in the word "Olympic." Second, the SFAA argues that the First Amendment prohibits Congress from granting exclusive use of a word absent a requirement that the authorized user prove that an unauthorized use is likely to cause confusion. We address these contentions in turn.

FN6. The user may, however, raise traditional equitable defenses, such as laches. See Brief for Respondents 20, n. 17.

FN7. A common descriptive name of a product or service is generic. Because a generic name by definition does not distinguish the identity of a particular product, it cannot be registered as a trademark under the Lanham Act. See §§ 2, 14(c), 15 U.S.C. §§ 1052, 1064(c). See also 1 J. McCarthy, Trademarks and Unfair Competition § 12:1, p. 520 (1984).

A

This Court has recognized that words are not always fungible, and that the suppression of particular words "run[s] a substantial risk of suppressing ideas in the process." Cohen v. California, 403 U.S. 15, 26, 91 S.Ct. 1780, 1788, 29 L.Ed.2d 284 (1971). The SFAA argues that this principle**2979prohibits Congress from granting the USOC exclusive control of uses of the word "Olympic," a word that the SFAA views as generic. [FN8] Yet this recognition always has been balanced against the principle that when a word acquires value "as the result of organization and the expenditure of labor, skill, and money" by an entity, that entity constitutionally may obtain a limited property right in the word. International News Service v. Associated Press, 248 U.S. 215, 239, 39 S.Ct. 68, 72, 63 L.Ed. 211 (1918). See Trade-Mark Cases, 100 U.S. (10 Otto) 82, 92, 25 L.Ed. 550 (1879).

FN8. This grant by statute of exclusive use of distinctive words andsymbols by Congress is not unique. Violation of some of these statutes may result in criminal penalties. See, e.g., 18 U.S.C. § 705 (veterans' organizations); § 706 (American National Red Cross); § 707 (4-H Club); § 711 ("Smokey Bear"); § 711a ("Woodsy Owl"). See also FTC v. A.P.W. Paper Co., 328 U.S. 193, 66 S.Ct. 932, 90 L.Ed. 1165 (1946) (reviewing application of Red Cross statute). Others, like the USOC statute, provide for civil enforcement. See, e.g., 36 U.S.C. § 18c (Daughters of the American Revolution); § 27 (Boy Scouts); § 36 (Girl Scouts); § 1086 (Little League Baseball); § 3305 (1982 ed., Supp. III) (American National Theater and Academy).

[6] There is no need in this case to decide whether Congress ever could grant a private entity exclusive use of a generic word. Congress reasonably could conclude that the commercial*533and promotional value of the word "Olympic" was the product of the USOC's "own talents and energy, the end result of much time, effort, and expense." Zacchini v. Scripps-Howard Broadcasting Co., 433 U.S. 562, 575, 97 S.Ct. 2849, 2857, 53 L.Ed.2d 965 (1977). The USOC, together with respondent International Olympic Committee (IOC), have used the word "Olympic" at least since 1896, when the modern Olympic Games began. App. 348. Baron Pierre de Coubertin of France, acting pursuant to a government commission, then proposed the revival of the ancient Olympic Games to promote international understanding. D. Chester, The Olympic Games Handbook 13 (1975). De Coubertin sought to identify the "spirit" of the ancient Olympic Games that had been corrupted by the influence of money and politics. See M. Finley & H. Pleket, The Olympic Games: The First Thousand Years 4 (1976). [FN9] De Coubertin thus formed the IOC, that has established elaborate rules and procedures for the conduct of the modern Olympics. See Olympic Charter, Rules 26-69 (1985). In addition, these rules direct every national committee to protect the use of the Olympic flag, symbol, flame, and motto from unauthorized use. Id., Bye-laws to Rules 6 and 53. [FN10] Under the IOC *534Charter, the USOC is the national olympic committee for the United States with the sole authority to represent **2980 the United States at the Olympic Games. [FN11] Pursuant to this authority, the USOC has used the Olympic words and symbols extensively in this country to fulfill its object under the Olympic Charter of "ensur[ing] the development and safeguarding of the Olympic Movement and sport." Id., Rule 24.

***

[7] The history of the origins and associations of the word "Olympic" demonstrates the meritlessness of the SFAA's contention that Congress simply plucked a generic word out of the English vocabulary and grantedits exclusive use to the USOC. Congress reasonably could find that since 1896, the word "Olympic" has acquired what in trademark law is known as a secondary meaning-- it "has become distinctive of [the USOC's] goods in commerce." Lanham Act, § 2(f), 15 U.S.C. § 1052(f). See Park 'N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S., at 194, 105 S.Ct., at 661. The right to adopt and use such a word "to distinguish the goods or property [of] the person whose mark it is, to the exclusion of use by all other persons, has been long recognized." Trade-Mark Cases, supra, 100 U.S. (10 Otto), at 92. Because Congress reasonably could conclude that the USOC has distinguished the word "Olympic" through its own efforts, Congress' decision to grant the USOC a limited property right in the word "Olympic" falls*535 within the scope of trademark law protections, and thus certainly within constitutional bounds.

B

[8] Congress also acted reasonably when it concluded that the USOC should not be required to prove that an unauthorized use of the word "Olympic" is likely to confuse the public. [FN12] To the extent that § 110 applies to uses "for the purpose of trade [or] to induce the sale of any goods or services," 36 U.S.C. § 380(a), its application is to commercial speech. Commercial speech "receives a limited form of First Amendment protection." Posadas de Puerto Rico Assoc. v. Tourism Company of Puerto Rico, 478 U.S. 328, 340, 106 S.Ct. 2968, 2976, 92 L.Ed.2d 266 (1986); Central Hudson Gas & Electric Corp. v. Public Service Comm'n of New York, 447 U.S. 557, 562-563, 100 S.Ct. 2343, 2349-2350, 65 L.Ed.2d 341 (1980). Section 110 also allows the USOC to prohibit the use of "Olympic" for promotion of theatrical and athletic events. Although many of these promotional uses will be commercial speech, some uses may go beyond the "strictly business" context. See Friedman v. Rogers, 440 U.S. 1, 11, 99 S.Ct. 887, 895, 59 L.Ed.2d 100 (1979). In this case, the SFAA claims that its use of the word "Olympic" was intended to convey a political statement about the status of homosexuals in society. [FN13] Thus, the SFAA claims that in this case § 110 suppresses political speech.

FN12. To the extent that § 110 regulates confusing uses, it is withinnormal trademark bounds. The Government constitutionally may regulate "deceptive or misleading" commercial speech. Virginia Pharmacy Bd. v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 771, 96 S.Ct. 1817, 1830, 48 L.Ed.2d 346 (1976); Friedman v. Rogers, 440 U.S. 1, 9-10, 99 S.Ct. 887, 893-894, 59 L.Ed.2d 100 (1979).

FN13. According to the SFAA's president, the Gay Olympic Games would have offered three "very important opportunities":

"1) To provide a healthy recreational alternative to a suppressed minority.

"2) To educate the public at large towards a more reasonable characterization of gay men and women.

"3) To attempt, through athletics, to bring about a positive and gradual assimilation of gay men and women, as well as gays and non-gays, and to diminish the ageist, sexist and racist divisiveness existing in all communities regardless of sexual orientation." App. 93.

His expectations "were that people of all persuasions would be drawn to the event because of its Olympic format and that its nature of 'serious fun' would create a climate of friendship and co-operation[;] false images and misconceptions about gay people would decline as a result of a participatory [sic ] educational process, and benefit ALL communities." Id., at 93-94. He thought "[t]he term 'Olympic' best describe[d] [the SFAA's] undertaking" because it embodied the concepts of "peace, friendship and positive social interaction." Id., at 99.

*536 [9] **2981 By prohibiting the use of one word for particular purposes, neither Congress nor the USOC has prohibited the SFAA from conveying its message. The SFAA held its athletic event in its planned format under the names "Gay Games I" and "Gay Games II" in 1982 and 1986, respectively. See n. 2, supra. Nor is it clear that § 110 restricts purely expressive uses of the word "Olympic." [FN14] Section 110 restricts only the manner in which the SFAA may convey its message. The restrictions on expressive speech properly are characterized as incidental to the primary congressional purpose of encouraging and rewarding the USOC's activities. [FN15] The appropriate *537 inquiry is thus whether the incidental restrictions on First Amendment freedoms are greater than necessary to further a substantial governmental interest. United States v. O'Brien, 391 U.S. 367, 377, 88 S.Ct. 1673, 1679, 20 L.Ed.2d 672 (1968). [FN16]

FN14. One court has found that § 110 does not prohibit the use of the Olympic logo of five interlocking rings and the Olympic torch on a poster expressing opposition to the planned conversion of the Olympic Village at Lake Placid, New York, into a prison. The court found that the use of the symbols did not fit the commercial or promotional definition of uses in § 110. Stop the Olympic Prison v. United States Olympic Committee, 489 F.Supp. 1112, 1118-1121 (SDNY 1980).

FN15. Justice BRENNAN finds the Act unconstitutionally overbroad. But on its face, it applies primarily to commercial speech, to which the application of the overbreadth doctrine is highly questionable. See Ohralik v. Ohio State Bar Assn., 436 U.S. 447, 462, n. 20, 98 S.Ct. 1912, 1921, n. 20, 56 L.Ed.2d 444 (1978) (citing Bates v. State Bar of Arizona, 433 U.S. 350, 380, 97 S.Ct. 2691, 2707, 53 L.Ed.2d 810 (1977)). There is no basis in the record to believe that the Act will be interpreted or applied to infringe significantly on noncommercial speech rights. The application of the Act to the SFAA is well within constitutional bounds, and the extent to which the Act may be read to apply to noncommercial speech is limited. We find no "realistic danger that the statute itself will significantly compromise recognized First Amendment protections of parties not before the Court." City Council of Los Angeles v. Taxpayers for Vincent, 466 U.S. 789, 801, 104 S.Ct. 2118, 2126, 80 L.Ed.2d 772 (1984). Accordingly, we decline to apply the overbreadth doctrine to this case.

FN16. A restriction on nonmisleading commercial speech may be justified if the government's interest in the restriction is substantial, directly advances the government's asserted interest, and is no more extensive than necessary to serve the interest. Central Hudson Gas & Electric Corp. v. Public Service Comm'n of New York, 447 U.S. 557, 566, 100 S.Ct. 2343, 2351, 65 L.Ed.2d 341 (1980). Both this test and the test for a time, place, or manner restriction under O'Brien require a balance between the governmental interest and the magnitude of the speech restriction. Because their application to these facts is substantially similar, they will be discussed together.

One reason for Congress to grant the USOC exclusive control of the word "Olympic," as with other trademarks, is to ensure that the USOC receives the benefit of its own efforts so that the USOC will have an incentive to continue to produce a "quality product," that, in turn, benefits the public. See 1 J. McCarthy, Trademarks and Unfair Competition § 2:1, pp. 44-47 (1984). But in the special circumstance of the USOC, Congress has a broader public interest in promoting, through the activities of the USOC, the participation of amateur athletes from the United States in "the great four-yearly sport festival, the Olympic Games." Olympic Charter, Rule 1 (1985). The USOC's goal under the Olympic Charter, Rule 24(B), is to further the Olympic movement, that has as its aims: "to promote the development of those physical and moral qualities which are the basis of sport"; "to educate young people through sport in a spirit of better understanding between each other and of friendship, thereby helping to build a better and more peaceful world"; and "to spread the Olympic principles throughout the world, thereby creating international goodwill." Id., Rule 1. See also id., Rule 11 (aims of the IOC). Congress' interests in promoting the USOC's activities include these purposes as well as those *538 specifically enumerated in**2982 the USOC's charter. [FN17] Section 110 directly advances these governmental interests by supplying the USOC with the means to raise money to support *539 the Olympics and encourages the USOC's activities by ensuring that it will receive the benefits of its efforts.

***

[10] The restrictions of § 110 are not broader than Congress reasonably could have determined to be necessary to further these interests. Section 110 primarily applies to all uses of the word "Olympic" to induce the sale of goods or services. Although the Lanham Act protects only against confusing uses, Congress' judgment respecting a certain word is not so limited. Congress reasonably could conclude that most commercial uses of the Olympic words and symbols are likely to be confusing. It also could determine that unauthorized uses, even if not confusing, nevertheless may harm the USOC by lessening the distinctiveness and thus the commercial value of the marks. See Schechter, The Rational Basis of Trademark Protection, 40 Harv.L.Rev. 813, 825 (1927) (one injury to a trademark owner may be "the gradual whittling away or dispersion of the identity and hold upon the public mind of the mark or name" by nonconfusing uses).

[11] In this case, the SFAA sought to sell T-shirts, buttons, bumper stickers, and other items, all emblazoned with the title "Gay Olympic Games." The possibility for confusion as to sponsorship is obvious. Moreover, it is clear that the SFAA sought to exploit the "commercial magnetism," see Mishawaka Rubber & Woolen Mfg. Co. v. S.S. Kresge Co., 316 U.S. 203, 205, 62 S.Ct. 1022, 1024, 86 L.Ed. 1381 (1942), of the word given value by the USOC. There is no question that this unauthorized use could undercut the USOC's efforts to use, and sell the right to use, the word in the future, since much of the word's value comes from its limited use. Such an adverse effect on the USOC's activities is **2983 directly contrary to Congress' interest. *540 Even though this protection may exceed the traditional rights of a trademark owner in certain circumstances, the application of the Act to this commercial speech is not broader than necessary to protect the legitimate congressional interest and therefore does not violate the First Amendment.

[12][13] Section 110 also extends to promotional uses of the word "Olympic," even if the promotion is not to induce the sale of goods. Under § 110, the USOC may prohibit purely promotional uses of the word only when the promotion relates to an athletic or theatrical event. The USOC created the value of the word by using it in connection with an athletic event. Congress reasonably could find that use of the word by other entities to promote an athletic event would directly impinge on the USOC's legitimate right of exclusive use. The SFAA's proposed use of the word is an excellent example. The "Gay Olympic Games" were to take place over a 9-day period and were to be held in different locations around the world. They were to include a torch relay, a parade with uniformed athletes of both sexes divided by city, an "Olympic anthem" and "Olympic Committee," and the award of gold, silver, and bronze medals, and were advertised under a logo of three overlapping rings. All of these features directly parallel the modern-day Olympics, not the Olympic Games that occurred in ancient Greece. [FN18] The image the SFAA*541 sought to invoke was exactly the image carefully cultivated by the USOC. The SFAA's expressive use of the word cannot be divorced from the value the USOC's efforts have given to it. The mere fact that the SFAA claims an expressive, as opposed to a purely commercial, purpose does not give it a First Amendment right to "appropriat[e] to itself the harvest of those who have sown." International News Service v. Associated Press, 248 U.S., at 239-240, 39 S.Ct., at 72. [FN19] The USOC's right to prohibit use of the word "Olympic" in the promotion of athletic events is at the core of its legitimate property right. [FN20]

*****

FN19. The SFAA claims a superior right to the use of the word "Olympic" because it is a nonprofit corporation and its athletic event was not organized for the primary purpose of commercial gain. But when the question is the scope of a legitimate property right in a word, the SFAA's distinction is inapposite. As this Court has noted in the analogous context of "fair use" under the Copyright Act:

"The crux of the profit/nonprofit distinction is not whether the sole motive of the use is monetary gain but whether the user stands to profit from exploitation of the [protected] material without paying the customary price." Harper & Row Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 562, 105 S.Ct. 2218, 2231, 85 L.Ed.2d 588 (1985).

Here, the SFAA's proposed use of the word "Olympic" was a clear attempt to exploit the imagery and goodwill created by the USOC.

FN20. Although a theatrical production is not as closely related to the primary use of the word by the USOC as is an athletic event, Congress reasonably could have found that when the word "Olympic" is used to promote such a production, it would implicate the value given to the word by the USOC.

*542 **2984 IV

[14] The SFAA argues that even if the exclusive use granted by § 110 does not violate the First Amendment, the USOC's enforcement of that right is discriminatory in violation of the Fifth Amendment. [FN21] The fundamental inquiry is whether the USOC is a governmental actor to whom the prohibitions of the Constitution apply. [FN22] The USOC is a "private corporation*543 established under Federal law." 36 U.S.C. § 1101(46). [FN23] In the Act, Congress granted the USOC a corporate charter, § 371, imposed certain requirements on the USOC, [FN24] and provided for some USOC funding through exclusive use of the Olympic words and symbols, § 380, and through direct grants. [FN25]

FN21. The SFAA invokes the Fourteenth Amendment for its discriminatory enforcement claim. The Fourteenth Amendment applies to actions by a State. The claimed association in this case is between the USOC and the Federal Government. Therefore, the Fourteenth Amendment does not apply. The Fifth Amendment, however, does apply to the Federal Government and contains an equal protection component. Bolling v. Sharpe, 347 U.S. 497, 499, 74 S.Ct. 693, 694, 98 L.Ed. 884 (1954). "This Court's approach to Fifth Amendment equal protection claims has ... been precisely the same as to equal protection claims under the Fourteenth Amendment." Weinberger v. Wiesenfeld, 420 U.S. 636, 638, n. 2, 95 S.Ct. 1225, 1228, n. 2, 43 L.Ed.2d 514 (1975). See Buckley v. Valeo, 424 U.S. 1, 96 S.Ct. 612, 46 L.Ed.2d 659 (1976) (per curiam ). The Petitioners raised the issue of discriminatory enforcement in their petition for certiorari, and both petitioners and respondents have briefed the issue fully. Accordingly, we address the claim as one under the Fifth Amendment.

FN22. Because we find no governmental action, we need not address the merits of the SFAA's discriminatory enforcement claim. We note, however, that the SFAA's claim of discriminatory enforcement is far from compelling. As of 1982 when this suit began, the USOC had brought 22 oppositions to trademark applications and one petition to cancel. App. 61. For example, the USOC successfully prohibited registration of the mark "Golden Age Olympics." Id., at 383. The USOC also litigated numerous suits prior to bringing this action, prohibiting use of the Olympic words and symbols by such entities as the National Amateur Sports Foundation, id., at 392, a shoe company, id., at 395, the International Federation of Body Builders, id., at 443, and a bus company, id., at 439. Since 1982, the USOC has brought a number of additional suits against various companies and the March of Dimes Birth Defects Foundation, id., at 437, and Brief for Respondents 41, n. 58. The USOC has authorized the use of the word "Olympic" to organizations that sponsor athletic competitions and events for handicapped persons ("Special Olympics") and for youth ("Junior Olympics" and "Explorer Olympics"). App. 33, 181. Both of these uses directly relate to a purpose of the USOC established by its charter. See 36 U.S.C. §§ 374(7), (13), reprinted supra, at 2981, n. 17. The USOC has not consented to any other uses of the word in connection with athletic competitions or events. App. 33.

The USOC necessarily has discretion as to when and against whom it files opposition to trademark applications, and when and against whom it institutes suits. The record before us strongly indicates that the USOC has acted strictly in accord with its charter and that there has been no actionable discrimination.

FN23. As such, the USOC is listed with 69 other federally created private corporations such as the American Legion, Big Brothers--Big Sisters of America, Daughters of the American Revolution, Veterans of Foreign Wars of the United States, the National Academy of Sciences, and the National Ski Patrol System, Inc. 36 U.S.C. § 1101. It hardly need be said that if federally created private corporations were to be viewed as governmental rather than private actors, the consequences would be far reaching. Apart from subjecting these private entities to suits under the equal protection component of the Due Process Clause of the Fifth Amendment, presumably--by analogy--similar types of nonprofit corporations established under state law could be viewed as governmental actors subject to such suits under the Equal Protection Clause of the Fourteenth Amendment.

FN24. For example, the USOC may amend its constitution only after providing an opportunity for notice and hearing, § 375(b); the USOC must allow for reasonable representation in its membership of certain groups, § 376(b); the USOC must remain nonpolitical, § 377; and the USOC must report on its operations and expenditures of grant moneys to Congress each year, § 382a.

****

*546 [19] **2986 Most fundamentally, this Court has held that a government "normally can be held responsible for a private decision only when it has exercised coercive power or has provided such significant encouragement, either overt or covert, that the choice must in law be deemed to be that of the [government]." Blum v. Yaretsky, supra, 457 U.S., at 1004, 102 S.Ct., at 2786; Rendell-Baker v. Kohn, supra, 457 U.S. at 840, 102 S.Ct., at 2771. See Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 166, 98 S.Ct. 1729, 1738, 56 L.Ed.2d 185 (1978); Jackson v. Metropolitan Edison Co., supra, 419 U.S., at 357, 95 S.Ct., at 456; Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 173, 92 S.Ct. 1965, 1971, 32 L.Ed.2d 627 (1972); Adickes v. S.H. Kress & Co., 398 U.S. 144, *547 170, 90 S.Ct. 1598, 1615, 26 L.Ed.2d 142 (1970). The USOC's choice of how to enforce its exclusive right to use the word "Olympic" simply is not a governmental decision. [FN28] There is no evidence that the Federal Government coerced or encouraged the USOC in the exercise of its right. At most, the Federal Government, by failing to supervise the USOC's use of its rights, can be said to exercise "[m]ere approval of or acquiescence in the initiatives" of the USOC. Blum v. Yaretsky, 457 U.S., at 1004-1005, 102 S.Ct., at 2785-2786. This is not enough to make the USOC's actions those of the Government. Ibid. See Flagg Bros., Inc. v. Brooks, supra, 436 U.S., at 164-165, 98 S.Ct., at 1737-1738; Jackson v. Metropolitan Edison Co., 419 U.S., at 357, 95 S.Ct., at 456. [FN29] Because the USOC is not a governmental**2987actor, the SFAA's claim that the USOC has enforced its rights in a discriminatory manner must fail. [FN30]

FN28. In fact, the Olympic Charter provides that the USOC "must be autonomous and must resist all pressures of any kind whatsoever, whether of a political, religious or economic nature." Rule 24.

FN29. For all of the same reasons indicated above, we reject the SFAA's argument that the United States Government should be viewed as a "joint participant" in the USOC's efforts to enforce its right to use the word "Olympic." See Burton v. Wilmington Parking Authority, 365 U.S. 715, 725, 81 S.Ct. 856, 861, 6 L.Ed.2d 45 (1961). The SFAA has failed to demonstrate that the Federal Government can or does exert any influence over the exercise of the USOC's enforcement decisions. Absent proof of this type of "close nexus between the [Government] and the challenged action of the [USOC]," the challenged action may not be "fairly treated as that of the [Government] itself." Jackson v. Metropolitan Edison Co., 419 U.S., at 351, 95 S.Ct., at 453.

FN30. In their petition for certiorari, petitioners argued only that because the USOC is a "state actor" it is prohibited from "selecting among diverse potential users of the word 'Olympic', based upon speech- suppressing and invidiously discriminatory motives." Pet. for Cert. i. The SFAA now argues that under Shelley v. Kraemer, 334 U.S. 1, 68 S.Ct. 836, 92 L.Ed. 1161 (1948), the District Court's entry of the injunction prohibiting the SFAA's use of the word "Olympic" constitutes governmental action sufficient to require a constitutional inquiry into the USOC's motivation in seeking the injunction. This new theory of governmental action is not fairly encompassed within the questions presented and thus is not properly before the Court. See this Court's Rule 21.1(a).

*548 V

Accordingly, we affirm the judgment of the Court of Appeals for the Ninth Circuit.

It is so ordered.

Justice O'CONNOR, with whom Justice BLACKMUN joins, concurring in part and dissenting in part.

I agree with the Court's construction of § 110 of the Amateur Sports Act, 92 Stat. 3048, 36 U.S.C. § 380, and with its holding that the statute is "within constitutional bounds." Ante, at 2980. Therefore, I join Parts I through III of the Court's opinion. But largely for the reasons explained by Justice BRENNAN in Part I-B of his dissenting opinion, I believe the United States Olympic Committee and the United States are joint participants in the challenged activity and as such are subject to the equal protection provisions of the Fifth Amendment. Accordingly, I would reverse the Court of Appeals' finding of no Government action and remand the case for determination of petitioners' claim of discriminatory enforcement.

Justice BRENNAN, with whom Justice MARSHALL joins, dissenting.

The Court wholly fails to appreciate both the congressionally created interdependence between the United States Olympic Committee (USOC) and the United States, and the significant extent to which § 110 of the Amateur Sports Act of 1978, 36 U.S.C. § 380, infringes on noncommercial speech. I would find that the action of the USOC challenged here is Government action, and that § 110 is both substantially overbroad and discriminates on the basis of content. I therefore dissent.

I

For two independent reasons, the action challenged here constitutes Government action. First, the USOC performs important governmental functions and should therefore be considered a governmental actor. Second, there exists "a *549 sufficiently close nexus between the [Government] and the challenged action" of the USOC that "the action of the latter may be fairly treated as that of the [Government] itself." Jackson v. Metropolitan Edison Co., 419 U.S. 345, 351, 95 S.Ct. 449, 453, 42 L.Ed.2d 477 (1974).

A

Examination of the powers and functions bestowed by the Government upon the USOC makes clear that the USOC must be considered a Government actor. It is true, of course, that the mere "fact '[t]hat a private entity performs a function which serves the public does not make its acts [governmental]' " in nature. Ante, at 2984-2985 (quoting Rendell-Baker v. Kohn, 457 U.S. 830, 842, 102 S.Ct. 2764, 2772, 73 L.Ed.2d 418 (1982) (emphasis added)). Such a definition, which might cover "all ... regulated businesses providing arguably essential goods and services," would sweep too broadly. Jackson, supra, 419 U.S., at 354, 95 S.Ct., at 455.

The Court has repeatedly held, however, that "when private individuals or groups are endowed by the State with powers or functions governmental in nature, they become agencies or instrumentalities of the **2988State and subject to its constitutional limitations." Evans v. Newton, 382 U.S. 296, 299, 86 S.Ct. 486, 488, 15 L.Ed.2d 373 (1966) (emphasis added). See Terry v. Adams, 345 U.S. 461, 73 S.Ct. 809, 97 L.Ed. 1152 (1953) (private political association and its elections constitute state action); Marsh v. Alabama, 326 U.S. 501, 66 S.Ct. 276, 90 L.Ed. 265 (1946) (privately owned "company town" is a state actor). Moreover, a finding of government action is particularly appropriate when the function performed is "traditionally the exclusive prerogative" of government. Jackson v. Metropolitan Edison Co., supra, 419 U.S., at 353, 95 S.Ct., at 455. Patently, Congress has endowed the USOC with traditional governmental powers that enable it to perform a governmental function. [FN1

]***

C

A close examination of the USOC and the Government thus reveals a unique interdependence between the two. Although at one time amateur sports was a concern merely of private entities, and the Olympic Games an event of significance only to individuals with a particular interest in athletic competition, that era is passed. In the Amateur Sports Act of 1978, Congress placed the power and prestige of the United States Government behind a single, central sports organization. Congress delegated to the USOC functions*560that Government actors traditionally perform--the representation of the Nation abroad and the administration of all private organizations in a particular economic sector. The representation function is of particular significance here, in my view, because an organization that need not adhere to the Constitution cannot meaningfully represent this Nation. The Government is free, of course, to "privatize" some functions it would otherwise perform. But such privatization ought not automatically release those who perform Government functions from constitutional obligations.

****

FN18. Section 110 of the Amateur Sports Act, 36 U.S.C. § 380, provides in part:

"Without the consent of the [USOC], any person who uses for the purpose of trade, to induce the sale of any goods or services, or to promote any theatrical exhibition, athletic performance, or competition--

* * *

"(3) any trademark, trade name, sign, symbol, or insignia falsely representing association with, or authorization by, the International Olympic Committee or the [USOC]; or "(4) the words 'Olympic ', 'Olympiad', 'Citius Altius Fortius', or any combination or simulation thereof tending to cause confusion, to cause mistake, to deceive, or to falsely suggest a connection with the [USOC] or any 'Olympic activity;

"shall be subject to suit in a civil action by the [USOC] for the remedies provided in the Act of July 5, 1946 (60 Stat. 427; popularly known as the Trademark Act of 1946 [Lanham Act, 15 U.S.C. § 1051 et seq.] )" (emphases added).

FN19. In the Court's view, § 110(a)(4) does not necessarily extend to purely expressive speech. Ante, at 2980, and n. 14.

I disagree. The statute is overbroad on its face because it is susceptible of application to a substantial amount of noncommercial speech, and vests the USOC with unguided discretion to approve and disapprove others' noncommercial use of "Olympic." Moreover, by eliminating even noncommercial uses of a particular word, it unconstitutionally infringes on the SFAA's right to freedom of expression. The Act also restricts speech in a way that is not content neutral. The Court's justifications of these infringements on First Amendment rights are flimsy. The statute cannot be characterized as a mere regulation of the "manner" of speech, and does not serve any Government purpose that would not effectively be protected by giving the USOC a standard commercial trademark. Therefore, as construed by the Court, § 110(a)(4) cannot withstand the First Amendment challenge presented by petitioners.

A

The USOC has held a trademark in the word "Olympic" since 1896, ante, at 7, and § 110(a)(3) of the Amateur Sports *562 Act perpetuates the USOC's protection against infringement of its trademarks. To be more than statutory surplusage, then, § 110(a)(4) must provide something more than a normal trademark. Thus, the Court finds that § 110(a)(4) grants to the USOC a novel and expansive word-use authority. [FN20] In my view, the Act, as interpreted by the Court, is substantially overbroad, violating the First Amendment because it prohibits "a substantial amount of constitutionally protected conduct." Hoffman Estates v. The Flipside, Hoffman Estates, Inc., 455 U.S. 489, 494, 102 S.Ct. 1186, 1191, 71 L.Ed.2d 362 (1982). The Amateur Sports Act is substantially overbroad in two respects. First, it grants the USOC the remedies of a commercial trademark to regulate the use of the word "Olympic," but refuses to interpret the Act to incorporate the defenses to trademark infringement**2995provided in the Lanham Act. These defenses are essential safeguards which prevent trademark power from infringing upon constitutionally protected speech. Second, the Court construes § 110(a)(4) to grant the USOC unconstitutional authority to prohibit use of "Olympic" in the "promotion of theatrical and athletic events," even if the promotional activities are noncommercial or expressive. Ante, at ----. [FN21]

FN20. The legislative history of the Act is consistent with its plain language and indicates that Congress granted word-use authority beyond the power to enforce a trademark. Congress' purpose was to give the USOC authority "to protect certain symbols, emblems, trademarks, tradenames and words by civil action." H.R.Rep. No. 95-1627, p. 10 (1978), U.S.Code Cong. & Admin.News 1978, p. 7483 (emphasis added). Significantly, throughout the House Report, Congress refers to the USOC's authority over the use of "Olympic" as a matter separate from the USOC's authority to enforce its trademarks. See, e.g., id., at 6, 7, 10, 15, 37-38, U.S.Code Cong. & Admin.News 1978, pp. 7479, 7480, 7483, 7488, 7495, 7496. Nowhere in the legislative history is there any hint that Congress equated the USOC's word-use authority over "Olympic" with its trademark power.

FN21. In interpreting the Amateur Sports Act, the Court selectively incorporates sections of the Lanham Act. Although the Court refuses to incorporate 15 U.S.C. § 1066 (requirement of consumer confusion) and § 1115 (statutory defenses), it does appear to incorporate § 1127. Ante, at 2978. This latter section limits the scope of trademark protection to a word "used by a manufacturer or merchant to identify and distinguish his goods, including a unique product, from those manufactured or sold by others." 15 U.S.C. § 1127 (1982 ed., Supp. III). The Court does not explain, however, the inconsistency between the definition of trademark protection in § 1127 (which limits protection to commercial uses) and the scope of the protection that § 110(a)(4) grants the USOC (including the noncommercial promotion of athletic and theatrical events).

*563 1

The first part of § 110 prohibits use of the word "Olympic" "for the purpose of trade" or "to induce the sale of any goods or services." There is an important difference between the word-use authority granted by this portion of § 110 and a Lanham Act trademark: the former primarily affects noncommercial speech, [FN22] while the latter does not. [FN23]

FN22. As the District Court recognized: "You're saying something that I have trouble with. You're talking Trademark Act and trademark law, trademark policies and philosophies of this country. But we have a unique situation here which takes it out of the typical trademark-type of litigation. [Section 110 of the Amateur Sports Act] imposes civil liability ... upon any person who uses [the word "Olympic"] without U.S.O.C. consent to promote any athletic performance or competition....

"... The plaintiffs here are seeking to enforce a law ... which creates a unique and different situation...." App. 265-266.

FN23. See Friedman v. Rogers, 440 U.S. 1, 11, 99 S.Ct. 887, 895, 59 L.Ed.2d 100 (1979) (trademark protections only extend to "strictly business" matters and involve "a form of commercial speech and nothing more"). In no trademark case that the Court has considered have we permitted trademark protection to ban a substantial amount of noncommercial speech. See, e.g., Park 'N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 201, 105 S.Ct. 658, 665, 83 L.Ed.2d 582 (1985) (Lanham Act provisions prevent "commercial monopolization" of descriptive language in the public domain).

Charitable solicitation and political advocacy by organizations such as SFAA [FN24] may in part consist of commercial *564 speech regulated by trademark law, but the expressive element of such speech has been sheltered from unconstitutional harm by Lanham Act defenses. Without them, the Amateur Sports Act prohibits a substantial amount of noncommercial speech.

FN24. The SFAA engages in political advocacy and charitable solicitation, activities that are protected by the First Amendment. See Schaumburg v. Citizens for a Better Environment, 444 U.S. 620, 632, 100 S.Ct. 826, 833, 63 L.Ed.2d 73 (1980) (charitable solicitation by an organization committed to political advocacy "involve[s] a variety of speech interests-- communication of information, the dissemination and propagation of views and ideas, and the advocacy of causes--that are within the protection of the First Amendment"). It is chartered as a nonprofit, educational organization whose purpose is to inform the general public about the "gay movement" and "to diminish the ageist, sexist and racist divisiveness existing in all communities regardless of sexual orientation." App. 93, 102. The SFAA solicited charitable donations and distributed T-shirts, buttons, and posters using the word "Olympic."

Trademark protection has been carefully confined to the realm of commercial speech by two important limitations in the Lanham Act. First, the danger of substantial regulation of noncommercial speech is diminished by denying enforcement of a trademark against uses of words that are not likely "to cause confusion, to cause mistake, or to deceive." See 15 U.S.C. § 1066. Confusion occurs when consumers make an incorrect mental association between the involved commercial products or their producers. See E. Vandenburgh, Trademark **2996 Law and Procedure § 5.20, p. 139 (2d ed. 1968). In contrast, § 110(a)(4) regulates even nonconfusing uses of "Olympic." For example, it may be that while SFAA's use of the word "Olympic" would draw attention to certain similarities between the "Gay Olympic Games" and the "Olympic Games," its use might nevertheless not confuse consumers. Because § 110 does not incorporate the requirement that a defendant's use of the word be confusing to consumers, it regulates an extraordinary range of noncommercial speech. [FN25]

FN25. In its complaint, the USOC included a cause of action under § 14330 of the California Business and Professional Code (1987), which protects trademark holders against uses which dilute the value of their trademark. App. 7-14. The USOC has not explained, however, why the remedies provided by the California dilution statute are insufficient.

It is worth noting that, although some state dilution statutes do not require proof of actual confusion, they do impose other limitations that are not imposed by § 110. "The dilution doctrine cannot and should not be carried to the extreme of forbidding use of a trademark on any and all products and services, however remote from the owner's usage." 2 J. McCarthy, Trademarks and Unfair Competition § 24:16, p. 229 (2d ed. 1984); see also 1 J. Gilson, Trademark Protection and Practice § 5.05[9], p. 5-42 (1986). Only "strong" trademarks are protected by dilution statutes, and the plaintiff's trademark must not previously have been diluted by others. 2 McCarthy, supra, § 24:14, p. 224; E. Vandenburgh, Trademark Law and Procedure § 5.20, p. 150 (2d ed. 1968). It is generally necessary to show similarity between trademarks and a "likelihood" of confusion. See 1 Gilson, supra, § 5.05[9], p. 5-42. Moreover, state dilution statutes do not generally apply to descriptive, nontrademark uses of words.

*565 The fair-use defense also prevents the award of a trademark from regulating a substantial amount of noncommercial speech. See 15 U.S.C. § 1115(b)(4). The Lanham Act allows "the use of the name, term, or device ... which is descriptive of and used fairly and in good faith only to describe to users the goods or services of such party." Ibid. [FN26] Again, a wide array of noncommercial speech may be characterized as merely descriptive of the goods or services of a party, and thus not intended to propose a commercial transaction. For example, the SFAA's description of its community services appears to be regulated by § 110, although the main purpose of such speech may be to educate the public about the social and political views of the SFAA. Congress' failure to incorporate this important defense in § 110(a)(4) confers an unprecedented right on the USOC. See Park 'N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 200-201, 105 S.Ct. 658, 664-665, 83 L.Ed.2d 582 (1985) (noting that fair-use doctrine assists in preventing the "unprecedented" creation of "an exclusive right to use language that is descriptive of a product"). [FN27]

FN26. It is important to note that even after a trademark has acquired secondary meaning, it may be used in a good-faith descriptive manner under the Lanham Act. See 1 McCarthy, supra, § 11:16, p. 475.

FN27. One commentator has described the First Amendment significance of this Lanham Act defense with respect to the regulation of commercial speech: "Virginia [State Board of ] Pharmacy [v. Virginia Citizens Consumer Council ] [425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976) ] and the underlying policies in favor of free commercial speech are closely parallel to those which apply to the branch of trademark law dealing with descriptive words and phrases. The same or very similar policies have been followed for more than a half century by courts and legislatures applying the rule of trademark law that descriptive words and terms cannot be monopolized as trademarks.... Without such availability, fair and open competition might be impaired, the available vocabulary of descriptive words would be reduced, advertisers could not freely describe their products, and the public might be deprived of information necessary to make purchase decisions.... If the court finds ... that defendant is using the term in a purely descriptive manner, it presumably can support its holding by reliance on the Virginia Pharmacy doctrine and policies." 1 Gilson, supra, § 5.09[5], pp. 5-88 to 5-89 (footnotes omitted).

*566 In sum, while the USOC's trademark of "Olympic" allows the USOC to regulate use of the word in the "strictly business" context, the USOC's authority under § 110(a)(4) to regulate nonconfusing and good-faith descriptive uses of the word "Olympic" grants the USOC discretion to**2997prohibit a substantial amount of noncommercial speech. Section 110(a)(4) is therefore substantially overbroad. See Secretary of State of Md. v. Joseph H. Munson Co., 467 U.S. 947, 959, 104 S.Ct. 2839, 2848, 81 L.Ed.2d 786 (1984); Schaumburg v. Citizens for a Better Environment, 444 U.S. 620, 632, 100 S.Ct. 826, 833, 63 L.Ed.2d 73 (1980).

2

A key Lanham Act requirement that limits the impact of trademarks on noncommercial speech is the rule that a trademark violation occurs only when an offending trademark is applied to commercial goods and services. See 15 U.S.C. §§ 1066 and 1127. The Amateur Sports Act is not similarly qualified. Section 110(a)(4) "allows the USOC to prohibit the use of 'Olympic' for promotion of theatrical and athletic events," [FN28] even if such uses "go beyond the 'strictly business' *567 context." Ante, at 2980; see also ante, at 2983 (statute extends to promotional uses "even if the promotion is not to induce the sale of goods"). [FN29] This provision necessarily regulates only noncommercial speech, since every possible commercial use of the word "Olympic" is regulated by preceding sections of the statute. [FN30]

FN28. Noncommercial promotion may include critical reviews of theatrical performances, anticipatory notices and descriptions in the media of athletic competitions, and distribution of educational literature describing the sociopolitical reasons for holding the public events. See Central Hudson Gas & Elec. Corp. v. Public Service Comm'n, 447 U.S. 557, 580, 100 S.Ct. 2343, 2358, 65 L.Ed.2d 341 (1980) (STEVENS, J., concurring in judgment) (promotional advertising encompasses more than commercial speech). For example, in response to the injunction, the SFAA excised the use of "Olympic" from its promotional and educational literature, cautioned its phone operators to refrain from using the term, and advised media representatives not to use this word in conjunction with articles about the cultural and athletic events sponsored by the SFAA. App. 88-92, 94-115.

FN29. Before concluding that the incidental regulation of some expressive speech is justified, ante, at 2983, the Court states that it is not clear that § 110 restricts purely expressive uses of "Olympic," ante, at 2980-2981. Such vagueness suggests that the Amateur Sports Act dangerously chills even purely expressive speech. In the instant case, a local newspaper organization excised "Olympic" from an edition in response to the imposed injunction. App. 89. See also n. 28, supra.

FN30. Every commercial use of "Olympic" is regulated under passages of the statute which precede this part of § 110. The USOC is authorized to regulate use of the word as a trademark under § 110(a)(3). All remaining commercial uses of "Olympic" not regulated by that subsection are governed by § 110(a)(4)'s authorization of the USOC to control the use of "Olympic" by "any person ... for the purpose of trade" or "to induce the sale of any goods or services." Consistent with the Court's interpretation, this authorization gives the USOC the right to Lanham Act remedies, even if SFAA's use of "Olympic" is noncommercial, nonconfusing, and merely descriptive.

While the USOC has unquestioned authority to enforce its "Olympic" trademark against the SFAA, § 110(a)(4) gives it additional authority to regulate a substantial amount of noncommercial speech that serves to promote social and political ideas. The SFAA sponsors a number of nonprofit-making theatrical and athletic events, including concerts, film screenings, and plays. [FN31] These public events are aimed at educating the public about society's alleged discrimination based on *568 sexual orientation, age, sex, and nationality. App. 93-99. In conjunction with these events, the SFAA distributes literature describing the meaning of the Gay Olympic Games. References to "Olympic" in this literature were deleted in response to the injunction, because of § 110's application to the promotion of athletic and theatrical events. Id., at 88- 89, 94, 97.

FN31. The SFAA's amateur athletic events include competition by age-groups with mixed genders in some sports to promote a climate of competition that emphasizes personal improvement rather than winning, and promotes goodwill toward all ages, sexes, and races. App. 98.

3

Thus, contrary to the belief of the Court, § 110 may prohibit a substantial amount of noncommercial speech, and is therefore unconstitutionally overbroad. Schaumburg **2998 v. Citizens for a Better Environment, supra, 444 U.S., at 632, 100 S.Ct., at 833. This overbreadth is particularly significant in light of the unfettered discretion the Act affords to the USOC to prohibit other entities from using the word "Olympic." Given the large number of such users, [FN32] this broad discretion creates the potential for significant suppression of protected speech. "[A] law subjecting the exercise of First Amendment freedoms to the prior restraint of a license, without narrow, objective, and definite standards to guide the licensing authority, is unconstitutional." Shuttlesworth v. Birmingham, 394 U.S. 147, 150-151, 89 S.Ct. 935, 938, 22 L.Ed.2d 162 (1969). See also Niemtko v. Maryland, 340 U.S. 268, 272, 71 S.Ct. 325, 327, 95 L.Ed. 267 (1951). "Proof of an abuse of power in the particular case has never been deemed a requisite for attack on the constitutionality of a statute purporting to license the dissemination of ideas." Thornhill v. Alabama, 310 U.S. 88, 97, 60 S.Ct. 736, 741, 84 L.Ed. 1093 (1940). This broad discretion, with its potential for abuse, also renders § 110 unconstitutionally overbroad on its face.

FN32. See Brief for Respondents 40-41. In Los Angeles and Manhattan alone, there are over 200 enterprises and organizations listed in the telephone directories whose names start with the word "Olympic." 789 F.2d 1319, 1323 (CA9 1986) (Kozinski, J., dissenting).

B

The Court concedes that "some" uses of "Olympic" prohibited under § 110 may involve expressive speech. Ante, at *569 2980. But it contends that "[b]y prohibiting the use of one word for particular purposes, neither Congress nor the USOC has prohibited the SFAA from conveying its message.... Section 110 restricts only the manner in which the SFAA may convey its message." Ante, at 2981 (emphasis added). Section 110(a)(4) cannot be regarded as a mere time, place, and manner statute, however. By preventing the use of the word "Olympic," the statute violates the First Amendment by prohibiting dissemination of a message for which there is no adequate translation.

In Cohen v. California, 403 U.S. 15, 91 S.Ct. 1780, 29 L.Ed.2d 284 (1971), we rejected the very notion advanced today by the Court when considering the censorship of a single four-letter expletive:

"[W]e cannot indulge the facile assumption that one can forbid particular words without also running a substantial risk of suppressing ideas in the process. Indeed, governments might soon seize upon the censorship of particular words as a convenient guise for banning the expression of unpopular views. We have been able ... to discern little social benefit that might result from running the risk of opening the door to such grave results." Id., at 26, 91 S.Ct., at 1787-1788.

The Amateur Sports Act gives a single entity exclusive control over a wide range of uses of a word with a deep history in the English language and Western culture. Here, the SFAA intended, by use of the word "Olympic," to promote a realistic image of homosexual men and women that would help them move into the mainstream of their communities. As Judge Kozinski observed in dissent in the Court of Appeals, just as a jacket reading "I Strongly Resent the Draft" would not have conveyed Cohen's message, so a title such as "The Best and Most Accomplished Amateur Gay Athletes Competition" would not serve as an adequate translation of petitioners' message. 789 F.2d 1319, 1321 (CA9 1986). Indeed, because individual words carry "a life and force of their own," translations never fully capture the sense *570of the original. [FN33] The First Amendment protects**2999 more than the right to a mere translation. By prohibiting use of the word "Olympic," the USOC substantially infringes upon the SFAA's right to communicate ideas.

FN33. James Boyd White has written:

"When we look at particular words, it is not their translation into statements of equivalence that we should seek but an understanding of the possibilities they represent for making and changing the world.... Such words do not operate in ordinary speech as restatable concepts but as words with a life and force of their own. They cannot be replaced with definitions, as though they were parts of a closed system, for they constitute unique resources, of mixed fact and value, and their translation into other terms would destroy their nature. Their meaning resides not in their reducibility to other terms but in their irreducibility.... They operate indeed in part as gestures, with a meaning that cannot be restated." J. White, When Words Lose Their Meaning 11 (1984).

C

The Amateur Sports Act also violates the First Amendment because it restricts speech in a way that is not content neutral. A wide variety of groups apparently wish to express particular sociopolitical messages through the use of the word "Olympic," but the Amateur Sports Act singles out certain of the groups for favorable treatment. As the Court observes, ante, at 2984, n. 22, Congress encouraged the USOC to allow the use of "Olympic" in athletic competitions held for youth ("Junior Olympics" and "Explorer Olympics") and handicapped persons ("Special Olympics"), 36 U.S.C. § 374(13), while leaving to the USOC's unfettered discretion the question whether other groups may use it. See, e.g., USOC v. Golden Age Olympics, Inc., Opposition No. 62,426 (Patents and Trademarks Comm'n, June 4, 1981) (reprinted in App. 383) (denial of use of "Olympic" to senior citizens group); USOC v. International Federation of Body Builders, 219 USPQ 353 (DC 1982) (denial of use to organization promoting body-building).

The statute thus encourages the USOC to endorse particular noncommercial messages, while prohibiting others. Such *571 a scheme is unacceptable under the First Amendment. [FN34] "[A]bove all else, the First Amendment means that government has no power to restrict expression because of its message, its ideas, its subject matter, or its content." Police Department of Chicago v. Mosley, 408 U.S. 92, 95, 92 S.Ct. 2286, 2290, 33 L.Ed.2d 212 (1972). See also Regan v. Time, Inc., 468 U.S. 641, 648-649, 104 S.Ct. 3262, 3266-3267, 82 L.Ed.2d 487 (1984) (holding that Government determination of publishability of photographs based on whether message is "newsworthy or educational" constitutes content-based discrimination in violation of First Amendment).

FN34. Due to the particular meaning of "Olympic," the suppression of the use of the word has its harshest impact on those groups that may benefit most from its use, such as those with debilitating birth defects, see USOC v. March of Dimes Birth Defects Foundation, No. CA 83-539 (Colo., July 1, 1983), and the aged, see USOC v. Golden Age Olympics, Inc., Opposition No. 62,426. Cf. Virginia Pharmacy Bd. v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 763, 96 S.Ct. 1817, 1826, 48 L.Ed.2d 346 (1976).

D

Even if § 110(a)(4) may fairly be characterized as a statute that directly regulates only commercial speech, its incidental restrictions on First Amendment freedoms are greater than necessary to further a substantial Government interest. The sole Government interest proffered for giving the USOC sweeping powers over the use of "Olympic" is the desire to provide a financial subsidy to the USOC. Brief for Respondents 24. At minimum, it is necessary to consider whether the USOC's interest in use of the word "Olympic" could not adequately be protected by rights coextensive with those in the Lanham Act, or by some other restriction on use of the word.

In the absence of § 110(a)(4), the USOC would have authority under the Lanham Act to enforce its "Olympic" trademark against commercial uses of the word that might cause*572consumer confusion and a loss of the mark's distinctiveness. [FN35] There is no evidence in the record that this authority is insufficient to protect the USOC from economic harm. The record and the legislative history are barren of proof or**3000conclusion that noncommercial, nonconfusing, and nontrademark use of "Olympic" in any way dilutes or weakens the USOC's trademark. See Stop The Olympic Prison v. United States Olympic Committee, 489 F.Supp. 1112, 1123 (SDNY 1980) (dismissing USOC's dilution claim because no actual proof of such injury). No explanation is offered, for instance, as to how the use of "Olympic" in theatrical events in conjunction with a disclaimer "not associated with [the USOC]" harms the economic force of the trademark. See Brief for Petitioners 12. The Court contends that § 110 may prohibit uses of "Olympic" because it protects an "image carefully cultivated by the USOC." Ante, at 2983. Again, there is no proof in the record that the Lanham Act inadequately protects the USOC's commercial interest in its image or that the SFAA has harmed the USOC's image by its speech. [FN36]

FN35. In this litigation, the USOC filed causes of action under the Lanham Act, the Amateur Sports Act, and the California dilution statute. App. 7- 14.

FN36. Nor is there any evidence that SFAA's expressive speech caused economic or reputational harm to the USOC's image. In Spence v. Washington, 418 U.S. 405, 94 S.Ct. 2727, 41 L.Ed.2d 842 (1974), a State asserted a similar interest in the integrity of America's flag as " 'an unalloyed symbol of our country,' " and contended that there is a substantial Government interest in "preserving the flag as 'an important symbol of nationhood and unity.' " Id., at 421, 94 S.Ct., at 2735. The Court considered whether a State could withdraw "a unique national symbol from the roster of materials that may be used as a background for communications." Id., at 423, 94 S.Ct., at 2736 (REHNQUIST, J., dissenting). It reviewed a state law that limited the use of the American flag and forbade the public exhibition of a flag that was distorted or marked. Id., at 407, 422, 94 S.Ct., at 2728, 2736. The appellant was convicted for violating the statute by displaying the flag upside down in the window of his apartment with a peace symbol attached to it. Eight Members of the Court held that the statute was unconstitutional as applied to appellant's activity. "There was no risk that appellant's acts would mislead viewers into assuming that the Government endorsed his viewpoint," and "his message was direct, likely to be understood, and within the contours of the First Amendment." Id., at 414-415, 94 S.Ct., at 2732. The Court concluded that since the state interest was not "significantly impaired," the conviction violated the First Amendment. Id., at 415, 94 S.Ct., at 2732. Similarly, in this case, the SFAA's primary purpose was to convey a political message that is nonmisleading and direct. This message, like the symbolic speech in Spence, is protected by the First Amendment.

*573 Language, even in a commercial context, properly belongs to the public, unless the Government's asserted interest is substantial, and unless the limitation imposed is no more extensive than necessary to serve that interest. See ante, at 2981, n. 16; see also Park 'N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S., at 215, n. 21, 105 S.Ct., at 672, n. 21 (STEVENS, J., dissenting), citing Otto Roth & Co. v. Universal Foods Corp., 640 F.2d 1317, 1320 (CCPA 1981) (recognizing importance of "free use of the language" in commercial speech context). [FN37] The Lanham Act is carefully crafted to prevent commercial monopolization of language that otherwise belongs in the public domain. See Park 'N Fly, Inc., supra, 469 U.S. at 200-201, 105 S.Ct., at 664-665. [FN38] The USOC demonstrates no need for additional protection. In my view, the SFAA therefore is entitled to use the word "Olympic" in a nonconfusing and nonmisleading manner in the noncommercial promotion of a theatrical or athletic event, absent proof of resultant harm to the USOC.

FN37. See also Bada Co. v. Montgomery Ward & Co., 426 F.2d 8, 11 (CA9) ("[O]ne competitor will not be permitted to impoverish the language of commerce by preventing his fellows from fairly describing their own goods"), cert. denied, 400 U.S. 916, 91 S.Ct. 174, 27 L.Ed.2d 155 (1970).

FN38. The Lanham Act "provides national protection of trademarks in order to secure to the owner of the mark the goodwill of his business and to protect the ability of consumers to distinguish among competing producers." Park 'N Fly, Inc., 469 U.S., at 198, 105 S.Ct., at 663.

I dissent.


 

The 1st Amendment & "Venerated Objects"

109 S.Ct. 2533

105 L.Ed.2d 342, 57 USLW 4770

(Cite as: 491 U.S. 397, 109 S.Ct. 2533) 

TEXAS, Petitioner v. Gregory Lee JOHNSON.

No. 88-155.

Supreme Court of the United States

Argued March 21, 1989.

Decided June 21, 1989.

Defendant was convicted in the County Criminal Court No. 8, Dallas County, John C. Hendrik, J., of desecration of venerated object, and he appealed.

 *399 Justice BRENNAN delivered the opinion of the Court.

After publicly burning an American flag as a means of political protest, Gregory Lee Johnson was convicted of desecrating a flag in violation of Texas law. This case presents the question whether his conviction is consistent with the First Amendment. We hold that it is not.

*****

We never before have held that the Government may ensure that a symbol be used to express only one view of that symbol or its referents. Indeed, in Schacht v. United States, we invalidated a federal statute permitting an actor portraying a member of one of our Armed Forces to " 'wear the uniform of that armed force if the portrayal does not tend to discredit that armed force.' " 398 U.S., at 60, 90 S.Ct., at 1557, quoting 10 U.S.C. § 772(f). This proviso, we held, "which leaves Americans free to praise the war in Vietnam but can send persons like Schacht to prison for opposing it, cannot survive in a country which has the First Amendment." Id., at 63, 90 S.Ct., at 1559.

We perceive no basis on which to hold that the principle underlying our decision in Schacht does not apply to this case. To conclude that the government may permit **2547 designated symbols to be used to communicate only a limited set of messages would be to enter territory having no discernible or defensible boundaries. Could the government, on this theory, prohibit the burning of state flags? Of copies of the Presidential seal? Of the Constitution? In evaluating these choices under the First Amendment, how would we decide which symbols were sufficiently special to warrant this unique status? To do so, we would be forced to consult our own political preferences, and impose them on the citizenry, in the very way that the First Amendment forbids us to do. See Carey v. Brown, 447 U.S., at 466-467, 100 S.Ct., at 2293-2294.

************

Chief Justice REHNQUIST, with whom Justice WHITE and Justice O'CONNOR join, dissenting.

****

Only two Terms ago, in San Francisco Arts & Athletics, Inc. v. United States Olympic Committee, 483 U.S. 522, 107 S.Ct. 2971, 97 L.Ed.2d 427 (1987), the Court held that Congress could grant exclusive use of the word "Olympic" to the United States Olympic Committee. The Court thought that this "restrictio [n] on expressive speech properly [was] characterized as incidental to the primary congressional purpose of encouraging and rewarding the USOC's activities." Id., at 536, 107 S.Ct., at 2981. As the Court stated, "when a word [or symbol] acquires value 'as the result of organization and the expenditure of labor, skill, and money' by an entity, that entity constitutionally may obtain a limited property right in the word [or symbol]." Id., at 532, 107 S.Ct., at 2974, quoting International News Service v. Associated Press, 248*430U.S. 215, 239, 39 S.Ct. 68, 72, 63 L.Ed. 211 (1918). Surely Congress or the States may recognize a similar interest in the flag.

******

Surely one of the high purposes of a democratic society is to legislate against conduct that is regarded as evil and profoundly offensive to the majority of people--whether it be murder, embezzlement, pollution, or flag burning.**** Uncritical extension of constitutional protection to the burning of the flag risks the frustration of the very purpose for which organized governments are instituted. The Court decides that the American flag is just another symbol, about which not only must opinions pro and con be tolerated, but for which the most minimal public respect may not be enjoined. The government may conscript men into the Armed Forces where they must fight and perhaps die for the flag, but the government may not prohibit the public burning of the banner under which they fight. I would uphold the Texas statute as applied in this case.


102d CONGRESS

1st Session

H. R. 2723

To grant the United States a copyright to the Flag of the United States and to impose criminal penalties for the destruction of a copyrighted Flag.

IN THE HOUSE OF REPRESENTATIVES

June 20, 1991

Mr. TORRICELLI introduced the following bill; which was referred to the Committee on the Judiciary A BILL

To grant the United States a copyright to the Flag of the United States and to impose criminal penalties for the destruction of a copyrighted Flag.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. UNITED STATES GRANTED COPYRIGHT TO THE FLAG OF THE UNITED STATES.

The United States is hereby granted a copyright to the Flag of the United States.

SEC. 2. LICENSE TO MANUFACTURE, SELL, OR DISTRIBUTE THE FLAG OF THE UNITED STATES.

The United States hereby grants a license to any person to manufacture in the United States the Flag of the United States, and to sell and distribute such Flag.

SEC. 3. REQUIREMENTS OF THE DISPLAY OF THE FLAG OF THE UNITED STATES.

Any Flag of the United States may only be displayed in accordance with chapter 1 of title 4, United States Code, (relating to the Flag of the United States) and the joint resolution entitled `Joint Resolution to codify and emphasize existing rules and customs pertaining to the display and use of the flag of the United States of America', approved June 22, 1942 (36 U.S.C. 174-178).

SEC. 4. CRIMINAL PENALTIES FOR BURNING OR MUTILATING THE FLAG OF THE UNITED STATES.

(a) IN GENERAL- Whoever burns or otherwise mutilates a Flag of the United States shall be punished as follows:

(1) If the damage to such Flag exceeds $100, by a fine of not more than $10,000 or imprisonment for not more than 10 years, or both.

(2) If the damage to such Flag does not exceed $100, by a fine of not more than $1,000 or imprisonment for not more than one year, or both.

(b) EXCEPTION- Subsection (a) shall not apply with respect to whoever destroys a Flag of the United States in accordance with section 4 of the joint resolution referred to in section 3.

SEC. 5. DEFINITIONS.

As used in this Act--

(1) the term `Flag of the United States' means a rectangular design which consists of 13 horizontal stripes, alternate red and white, with a union of 50 white stars in a blue field, and which the average person, upon seeing such design, may believe without deliberation to represent the Flag of the United States of America; and

(2) the term `United States', when used in the geographical sense, means the 50 States, the District of Columbia, the Commonwealth of Puerto Rico, any possession of the United States, the Commonwealth of the Northern Mariana Islands, and the Trust Territory of the Pacific Islands. 

1st Amendment -- Prior Restraint

604 F.2d 200

203 U.S.P.Q. 161, 5 Media L. Rep. 1814

(Cite as: 604 F.2d 200) 

DALLAS COWBOYS CHEERLEADERS, INC., Plaintiff-Appellee,

v.

PUSSYCAT CINEMA, LTD. and Michael Zaffarano, Defendants-Appellants.

No. 950, Docket 79-7179.

United States Court of Appeals,

Second Circuit.

Argued April 6, 1979.

Decided Aug. 14, 1979.

Plaintiff in this trademark infringement action is Dallas Cowboys Cheerleaders, Inc., a wholly owned subsidiary of the Dallas Cowboys Football Club, Inc. Plaintiff employs thirty-six women who perform dance and cheerleading routines at Dallas Cowboys football games. The cheerleaders have appeared frequently on television programs and make commercial appearances at such public events as sporting goods shows and shopping center openings. In addition, plaintiff licenses others to manufacture and distribute posters, calendars, T-shirts, and the like depicting Dallas Cowboys Cheerleaders in their uniforms. These products have enjoyed nationwide commercial success, due largely to the national exposure the Dallas Cowboys Cheerleaders have received through the news and entertainment media. Moreover, plaintiff has expended large amounts of money to acquaint the public with its uniformed cheerleaders and earns substantial revenue from their commercial appearances.

At all the football games and public events where plaintiff's cheerleaders appear and on all commercial items depicting the cheerleaders, the women are clad in plaintiff's distinctive uniform. The familiar outfit consists of white vinyl boots, white shorts, a white belt decorated with blue stars, a blue bolero blouse, and a white vest decorated with three blue stars on each side of the front and a white fringe around the bottom. In this action plaintiff asserts that it has a trademark in its uniform and that defendants have infringed and diluted that trademark in advertising and exhibiting "Debbie Does Dallas."

Pussycat Cinema, Ltd., is a New York corporation which owns a movie theatre in New York City; Zaffarano is the corporation's sole stockholder. In November 1978 the Pussycat Cinema began to show "Debbie Does Dallas," a gross and revolting sex film whose plot, to the extent that there is one, involves a cheerleader at a fictional high school, Debbie, who has been selected to become a "Texas Cowgirl." [FN1] In order to *203raise enough money to send Debbie, and eventually the entire squad, to Dallas, the cheerleaders perform sexual services for a fee. The movie consists largely of a series of scenes graphically depicting the sexual escapades of the "actors". In the movie's final scene Debbie dons a uniform strikingly similar to that worn by the Dallas Cowboys Cheerleaders and for approximately twelve minutes of film footage engages in various sex acts while clad or partially clad in the uniform. Defendants advertised the movie with marquee posters depicting Debbie in the allegedly infringing uniform and containing such captions as "Starring Ex Dallas Cowgirl Cheerleader Bambi Woods" and "You'll do more than cheer for this X Dallas Cheerleader." [FN2] Similar advertisements appeared in the newspapers.

FN1. The official appellation of plaintiff's cheerleaders is "Dallas Cowboys Cheerleaders", but the district court found that plaintiff also has a trademark in the names "Dallas Cowgirls" and "Texas Cowgirls" which have been made popular by the media.

FN2. Bambi Woods, the woman who played the role of Debbie, is not now and never has been a Dallas Cowboys Cheerleader.

Plaintiff brought this action alleging trademark infringement under section 43(a) of the Lanham Act (15 U.S.C. s 1125(a)), unfair competition, and dilution of trademark in violation of section 368-d of the New York General Business Law. The district court, in its oral opinion of February 13, 1979, found that "plaintiff ha(d) succeeded in proving by overwhelming evidence the merits of each one of its contentions." Defendants challenge the validity of all three claims.

[1][2][3][4] A preliminary issue raised by defendants is whether plaintiff has a valid trademark in its cheerleader uniform.[FN3] Defendants argue that the uniform is a purely functional item necessary for the performance of cheerleading routines and that it therefore is not capable of becoming a trademark. We do not quarrel with defendants' assertion that a purely functional item may not become a trademark. See In re Honeywell, Inc., 532 F.2d 180, 182-83 (C.C.P.A.1976). However, we do not agree that all of characteristics of plaintiff's uniform serve only a functional purpose or that, because an item is in part incidentally functional, it is necessarily precluded from being designated as a trademark. Plaintiff does not claim a trademark in all clothing designed and fitted to allow free movement while performing cheerleading routines, but claims a trademark in the particular combination of colors and collocation of decorations that distinguish plaintiff's uniform from those of other squads.[FN4] Cf. Socony Vacuum Oil Co. v. Rosen, 108 F.2d 632, 636 (6th Cir. 1940); John Wright, Inc. v. Casper Corp., 419 F.Supp. 292, 317 (E.D.Pa.1976). It is well established that, if the design of an item is nonfunctional and has acquired secondary meaning,[FN5] the design may become a trademark even if the item itself is functional. Ives Laboratories, Inc. v. Darby Drug Co., 601 F.2d 631, 642 (2d Cir. 1979); Truck Equipment Service Co. v. Fruehauf Corp., 536 F.2d 1210, 1215 (8th Cir.), Cert. denied, 429 U.S. 861, 97 S.Ct. 164, 50 L.Ed.2d 139 (1976). Moreover, when a feature of the construction of the item is arbitrary, the feature may become a trademark even though it serves a useful purpose. In *204 re Deister Concentrator Co., 289 F.2d 496, 506, 48 C.C.P.A. 952 (1961); Fotomat Corp. v. Cochran, 437 F.Supp. 1231 (D.Kan.1977). Thus, the fact that an item serves or performs a function does not mean that it may not at the same time be capable of indicating sponsorship or origin, particularly where the decorative aspects of the item are nonfunctional. See In re Penthouse International Ltd., 565 F.2d 679, 681 (Cust. & Pat.App.1977). See also In re World's Finest Chocolate, Inc., 474 F.2d 1012 (Cust. & Pat.App.1973). In the instant case the combination of the white boots, white shorts, blue blouse, and white star- studded vest and belt is an arbitrary design which makes the otherwise functional uniform trademarkable. [FN6]

FN3. At present plaintiff does not have a registered trademark or service mark in its uniform. However, plaintiff still may prevail if it establishes that it has a common law trademark or service mark. See Boston Professional Hockey Association v. Dallas Cap & Emblem Mfg., Inc., 510 F.2d 1004, 1010 (5th Cir.), Cert. denied, 423 U.S. 991, 96 S.Ct. 408, 46 L.Ed.2d 312 (1975); New York General Business Law s 368- d. Whether plaintiff's uniform is considered as a trademark or a service mark, the standards for determining infringement are the same. West &Co. v. Arica Institute, Inc., 557 F.2d 338, 340 n. 1 (2d Cir. 1977).

FN4. Plaintiff's design imparts a western flavor appropriate for a Texas cheerleading squad. The design is in no way essential to the performance of cheerleading routines and to that extent is not a functional aspect of the uniform.

FN5. Secondary meaning is "(t)he power of a name or other configuration to symbolize a particular business, product or company . . . ." Ideal Toy Corp. v. Kenner Products Division of General Mills Fun Group, Inc., 443 F.Supp. 291, 305 n. 14 (S.D.N.Y.1977). There is no dispute in this case that plaintiff's uniform is universally recognized as the symbol of the Dallas Cowboys Cheerleaders.

FN6. Although color alone is not capable of becoming a trademark, a combination of colors together with a distinctive arbitrary design may serve as a trademark. Quabaug Rubber Co. v. Fabiano Shoe Co., 567 F.2d 154, 161 (1st Cir. 1977).

*****

Having found that plaintiff has a trademark in its uniform, we must determine whether the depiction of the uniform in "Debbie Does Dallas" violates that trademark. The district court found that the uniform worn in the movie and shown on the marquee closely resembled plaintiff's uniform and that the public was likely to identify it as plaintiff's uniform. Our own comparison of the two uniforms convinces us that the district court was correct,[FN7] and defendants do not seriously contend that the uniform shown in the movie is not almost identical with plaintiff's.

***

[8][9][10] Defendants assert that the copyright doctrine of "fair use" should be held applicable to trademark infringement actions and that we should apply the doctrine to sanction their use of a replica of plaintiff's uniform. Fair use is "a 'privilege in others than the owner of a copyright to use the copyrighted material in a reasonable manner without his consent . . . .' " Rosemont Enterprises, Inc. v. Random *206 House, Inc., 366 F.2d 303, 306 (2d Cir. 1966) (quoting Ball, The Law of Copyright and Literary Property 260 (1944)), Cert. denied, 385 U.S. 1009, 87 S.Ct. 714, 17 L.Ed.2d 546 (1967). The fair use doctrine allows adjustments of conflicts between the first amendment and the copyright laws, See Wainwright Securities Inc. v. Wall Street Transcript Corp., 558 F.2d 91, 95 (2d Cir. 1977), Cert. denied, 434 U.S. 1014, 98 S.Ct. 730, 54 L.Ed.2d 759 (1978), and is designed primarily to balance "the exclusive rights of a copyright holder with the public's interest in dissemination of information affecting areas of universal concern, such as art, science and industry." Id. at 94. It is unlikely that the fair use doctrine is applicable to trademark infringements; [FN9] however, we need not reach that question. Although, as defendants assert, the doctrine of fair use permits limited copyright infringement for purposes of parody, See Berlin v. E. C. Publications, Inc., 329 F.2d 541 (2d Cir. 1964), Cert. denied, 379 U.S. 822, 85 S.Ct. 46, 13 L.Ed.2d 33 (1965), defendants' use of plaintiff's uniform hardly qualifies as parody or any other form of fair use. See Walt Disney Productions v. Mature Pictures Corp., 389 F.Supp. 1397, 1398 (S.D.N.Y.1975).

FN9. Because the primary purpose of the trademark laws is to protect the public from confusion, See W. E. Basset Co. v. Revlon, Inc., 354 F.2d868, 871 (2d Cir. 1966), it would be somewhat anomalous to hold that the confusing use of another's trademark is "fair use". See also Truck Equipment Service Co. v. Fruehauf Corp., supra, 536 F.2d at 1215.

[11][12] Nor does any other first amendment doctrine protect defendants' infringement of plaintiff's trademark. That defendants' movie may convey a barely discernible message [FN10] does not entitle them to appropriate plaintiff's trademark in the process of conveying that message. See Interbank Card Association v. Simms, 431 F.Supp. 131 (M.D.N.C.1977); Edgar Rice Burroughs, Inc. v. Manns Theatres, 195 U.S.P.Q. 159 (C.D.Cal.1976); Coca-Cola Co. v. Gemini Rising, Inc., supra, 346 F.Supp. at 1191. Plaintiff's trademark is in the nature of a property right, See Hanover Milling Co. v. Metcalf, 240 U.S. 403, 413, 36 S.Ct. 357, 60 L.Ed. 713 (1915); Alfred Dunhill of London, Inc. v. Dunhill Tailored Clothes, Inc., 293 F.2d 685, 692, 49 C.C.P.A. 730 (1961), Cert. denied, 369 U.S. 864, 82 S.Ct. 1030, 8 L.Ed.2d 84 (1962), and as such it need not "yield to the exercise of First Amendment rights under circumstances where adequate alternative avenues of communication exist." Lloyd Corp. v. Tanner, 407 U.S. 551, 567, 92 S.Ct. 2219, 2228, 33 L.Ed.2d 31 (1972). Because there are numerous ways in which defendants may comment on "sexuality in athletics" without infringing plaintiff's trademark, the district court did not encroach upon their first amendment rights in granting a preliminary injunction. See Walt Disney Productions v. Air Pirates, 581 F.2d 751, 758-59 (9th Cir. 1978); Reddy Communications, Inc. v. Environmental Action Foundation, 199 U.S.P.Q. 630, 634 (D.D.C.1977).

FN10. The question whether "Debbie Does Dallas" is obscene is not before us.

[13][14] For similar reasons, the preliminary injunction did not constitute an unconstitutional "prior restraint". This is not a case of government censorship, but a private plaintiff's attempt to protect its property rights. The propriety of a preliminary injunction where such relief is sought is so clear that courts have often issued an injunction without even mentioning the first amendment. See, e. g., Gilliam v. American Broadcasting Cos., 538 F.2d 14 (2d Cir. 1976); Edgar Rice Burroughs, Inc. v. Manns Theatres, supra, 195 U.S.P.Q. 159. The prohibition of the Lanham Act is content neutral, Cf. Schacht v. United States, 398 U.S. 58, 90 S.Ct. 1555, 26 L.Ed.2d 44 (1970), and therefore does not arouse the fears that trigger the application of constitutional "prior restraint" principles.

****


1st Amendment -- The Public Domain

989 F.2d 1512

26 U.S.P.Q.2d 1362, 21 Media L. Rep. 1330

(Cite as: 989 F.2d 1512) 

Vanna WHITE, Plaintiff-Appellant,

v.

SAMSUNG ELECTRONICS AMERICA, INC.; David Deutsch Associates, Defendants-

Appellees.

No. 90-55840.

United States Court of Appeals,

Ninth Circuit.

March 18, 1993.

Prior report: 971 F.2d 1395.

Before GOODWIN, PREGERSON and ALARCON, Circuit Judges.

The panel has voted unanimously to deny the petition for rehearing. Circuit Judge Pregerson has voted to reject the suggestion for rehearing en banc, and Circuit Judge Goodwin so recommends. Circuit Judge Alarcon has voted to accept the suggestion for rehearing en banc.

The full court has been advised of the suggestion for rehearing en banc. An active judge requested a vote on whether to rehear the matter en banc. The matter failed to receive a majority of the votes of the nonrecused active judges in favor of en banc consideration. Fed.R.App.P. 35.

The petition for rehearing is DENIED and the suggestion for rehearing en banc is REJECTED.

KOZINSKI, Circuit Judge, with whom Circuit Judges O'SCANNLAIN and KLEINFELD join, dissenting from the order rejecting the suggestion for rehearing en banc.

I

Saddam Hussein wants to keep advertisers from using his picture in unflattering contexts. [FN1] Clint Eastwood doesn't want tabloids to write about him. [FN2] Rudolf Valentino's heirs want to control his film biography. [FN3] The Girl Scouts don't want their image soiled by association with certain activities. [FN4] George Lucas wants to keep Strategic Defense Initiative fans from calling it "Star Wars." [FN5] Pepsico doesn't want singers to use the word "Pepsi" in their songs. [FN6] Guy Lombardo wants an exclusive*1513property right to ads that show big bands playing on New Year's Eve. [FN7] Uri Geller thinks he should be paid for ads showing psychics bending metal through telekinesis. [FN8] Paul Prudhomme, that household name, thinks the same about ads featuring corpulent bearded chefs. [FN9] And scads of copyright holders see purple when their creations are made fun of. [FN10]

FN1. See Eben Shapiro, Rising Caution on Using Celebrity Images, N.Y. Times, Nov. 4, 1992, at D20 (Iraqi diplomat objects on right of publicity grounds to ad containing Hussein's picture and caption "History has shown what happens when one source controls all the information").

FN2. Eastwood v. Superior Court, 149 Cal.App.3d 409, 198 Cal.Rptr. 342 (1983).

FN3. Guglielmi v. Spelling-Goldberg Prods., 25 Cal.3d 860, 160 Cal.Rptr. 352, 603 P.2d 454 (1979) (Rudolph Valentino); see also Maheu v. CBS, Inc., 201 Cal.App.3d 662, 668, 247 Cal.Rptr. 304 (1988) (aide to Howard Hughes). Cf. Frank Gannon, Vanna Karenina, in Vanna Karenina and Other Reflections (1988) (A humorous short story with a tragic ending. "She thought of the first day she had met VR__SKY. How foolish she had been. How could she love a man who wouldn't even tell her all the letters in his name?").

FN4. Girl Scouts v. Personality Posters Mfg., 304 F.Supp. 1228 (S.D.N.Y.1969) (poster of a pregnant girl in a Girl Scout uniform with the caption "Be Prepared").

FN5. Lucasfilm Ltd. v. High Frontier, 622 F.Supp. 931 (D.D.C.1985).

FN6. Pepsico Inc. claimed the lyrics and packaging of grunge rocker Tad Doyle's "Jack Pepsi" song were "offensive to [it] and [ ...] likely to offend [its] customers," in part because they "associate [Pepsico] and its Pepsi marks with intoxication and drunk driving." Deborah Russell, Doyle Leaves Pepsi Thirsty for Compensation, Billboard, June 15, 1991, at 43. Conversely, the Hell's Angels recently sued Marvel Comics to keep it from publishing a comic book called "Hell's Angel," starring a character of the same name. Marvel settled by paying $35,000 to charity and promising never to use the name "Hell's Angel" again in connection with any of its publications. Marvel, Hell's Angels Settle Trademark Suit, L.A. Daily J., Feb. 2, 1993, § II, at 1.

Trademarks are often reflected in the mirror of our popular culture. See Truman Capote, Breakfast at Tiffany's (1958); Kurt Vonnegut, Jr., Breakfast of Champions (1973); Tom Wolfe, The Electric Kool-Aid Acid Test (1968) (which, incidentally, includes a chapter on the Hell's Angels); Larry Niven, Man of Steel, Woman of Kleenex, in All the Myriad Ways (1971); Looking for Mr. Goodbar (1977); The Coca-Cola Kid (1985) (using Coca-Cola as a metaphor for American commercialism); The Kentucky Fried Movie (1977); Harley Davidson and the Marlboro Man (1991); The WonderYears (ABC 1988-present) ("Wonder Years" was a slogan of Wonder Bread); Tim Rice & Andrew Lloyd Webber, Joseph and the Amazing Technicolor Dream Coat (musical).

Hear Janis Joplin, Mercedes Benz, on Pearl (CBS 1971); Paul Simon, Kodachrome, on There Goes Rhymin' Simon (Warner 1973); Leonard Cohen, Chelsea Hotel, on The Best of Leonard Cohen (CBS 1975); Bruce Springsteen, Cadillac Ranch, on The River (CBS 1980); Prince, Little Red Corvette, on 1999 (Warner 1982); dada, Dizz Knee Land, on Puzzle (IRS 1992) ("I just robbed a grocery store--I'm going to Disneyland / I just flipped off President George--I'm going to Disneyland"); Monty Python, Spam, on The Final Rip Off (Virgin 1988); Roy Clark, Thank God and Greyhound [You're Gone], on Roy Clark's Greatest Hits Volume I (MCA 1979); Mel Tillis, Coca- Cola Cowboy, on The Very Best of (MCA 1981) ("You're just a Coca-Cola cowboy / You've got an Eastwood smile and Robert Redford hair ...").

Dance to Talking Heads, Popular Favorites 1976-92: Sand in the Vaseline (Sire 1992); Talking Heads, Popsicle, on id. Admire Andy Warhol, Campbell's Soup Can. Cf. REO Speedwagon, 38 Special, and Jello Biafra of the Dead Kennedys.

The creators of some of these works might have gotten permission from the trademark owners, though it's unlikely Kool-Aid relished being connected with LSD, Hershey with homicidal maniacs, Disney with armed robbers, or Coca-Cola with cultural imperialism. Certainly no free society can demand that artists get such permission.

FN7. Lombardo v. Doyle, Dane & Bernbach, Inc., 58 A.D.2d 620, 396 N.Y.S.2d 661 (1977).

FN8. Geller v. Fallon McElligott, No. 90-Civ-2839 (S.D.N.Y. July 22, 1991) (involving a Timex ad).

FN9. Prudhomme v. Procter & Gamble Co., 800 F.Supp. 390 (E.D.La.1992).

FN10. E.g., Acuff-Rose Music, Inc. v. Campbell, 972 F.2d 1429 (6th Cir.1992); Cliffs Notes v. Bantam Doubleday Dell Publishing Group, Inc., 886 F.2d 490 (2d Cir.1989); Fisher v. Dees, 794 F.2d 432 (9th Cir.1986); MCA, Inc. v. Wilson, 677 F.2d 180 (2d Cir.1981); Elsmere Music, Inc. v. NBC, 623 F.2d 252 (2d Cir.1980); Walt Disney Prods. v. The Air Pirates, 581 F.2d 751 (9th Cir.1978); Berlin v. E.C. Publications, Inc., 329 F.2d 541 (2d Cir.1964); Lowenfels v. Nathan, 2 F.Supp. 73 (S.D.N.Y.1932).

Something very dangerous is going on here. Private property, including intellectual property, is essential to our way of life. It provides an incentive for investment and innovation; it stimulates the flourishing of our culture; it protects the moral entitlements of people to the fruits of their labors. But reducing too much to private property can be bad medicine. Private land, for instance, is far more useful if separated from other private land by public streets, roads and highways. Public parks, utility rights-of- way and sewers reduce the amount of land in private hands, but vastly enhance the value of the property that remains.

So too it is with intellectual property. Overprotecting intellectual property is as harmful as underprotecting it. Creativity is impossible without a rich public domain. Nothing today, likely nothing since we tamed fire, is genuinely new: Culture, like science and technology, grows by accretion, each new creator building on the works of those who came before. Overprotection stifles the very creative forces it's supposed to nurture. [FN11]

FN11. See Wendy J. Gordon, A Property Right in Self Expression: Equality and Individualism in the Natural Law of Intellectual Property, 102 Yale L.J. 1533, 1556-57 (1993).

*1514 The panel's opinion is a classic case of overprotection. Concerned about what it sees as a wrong done to Vanna White, the panel majority erects a property right of remarkable and dangerous breadth: Under the majority's opinion, it's now a tort for advertisers to remind the public of a celebrity. Not to use a celebrity's name, voice, signature or likeness; not to imply the celebrity endorses a product; but simply to evoke the celebrity's image in the public's mind. This Orwellian notion withdraws far more from the public domain than prudence and common sense allow. It conflicts with the Copyright Act and the Copyright Clause. It raises serious First Amendment problems. It's bad law, and it deserves a long, hard second look.

II

Samsung ran an ad campaign promoting its consumer electronics. Each ad depicted a Samsung product and a humorous prediction: One showed a raw steak with the caption "Revealed to be health food. 2010 A.D." Another showed Morton Downey, Jr. in front of an American flag with the caption "Presidential candidate. 2008 A.D." [FN12] The ads were meant to convey--humorously--that Samsung products would still be in use twenty years from now.

FN12. I had never heard of Morton Downey, Jr., but I'm told he's sort of like Rush Limbaugh, but not as shy.

The ad that spawned this litigation starred a robot dressed in a wig, gown and jewelry reminiscent of Vanna White's hair and dress; the robot was posed next to a Wheel-of-Fortune-like game board. See Appendix. The caption read "Longest-running game show. 2012 A.D." The gag here, I take it, was that Samsung would still be around when White had been replaced by a robot.

Perhaps failing to see the humor, White sued, alleging Samsung infringed her right of publicity by "appropriating" her "identity." Under California law, White has the exclusive right to use her name, likeness, signature and voice for commercial purposes. Cal.Civ.Code § 3344(a); Eastwood v. Superior Court, 149 Cal.App.3d 409, 417, 198 Cal.Rptr. 342, 347 (1983). But Samsung didn't use her name, voice or signature, and it certainly didn't use her likeness. The ad just wouldn't have been funny had it depicted White or someone who resembled her--the whole joke was that the game show host(ess) was a robot, not a real person. No one seeing the ad could have thought this was supposed to be White in 2012.

The district judge quite reasonably held that, because Samsung didn't use White's name, likeness, voice or signature, it didn't violate her right of publicity. 971 F.2d at 1396-97. Not so, says the panel majority: The California right of publicity can't possibly be limited to name and likeness. If it were, the majority reasons, a "clever advertising strategist" could avoid using White's name or likeness but nevertheless remind people of her with impunity, "effectively eviscerat[ing]" her rights. To prevent this "evisceration," the panel majority holds that the right of publicity must extend beyond name and likeness, to any "appropriation" of White's "identity"-- anything that "evoke[s]" her personality. Id. at 1398-99.

III

But what does "evisceration" mean in intellectual property law? Intellectual property rights aren't like some constitutional rights, absolute guarantees protected against all kinds of interference, subtle as well as blatant. [FN13] They cast no penumbras, emit no emanations: The very point of intellectual property laws is that they protect only against certain specific kinds of appropriation. I can't publish unauthorized copies of, say, Presumed Innocent; I can't make a movie out of it. But I'm *1515perfectly free to write a book about an idealistic young prosecutor on trial for a crime he didn't commit. [FN14] So what if I got the idea from Presumed Innocent? So what if it reminds readers of the original? Have I "eviscerated" Scott Turow's intellectual property rights? Certainly not. All creators draw in part on the work of those who came before, referring to it, building on it, poking fun at it; we call this creativity, not piracy. [FN15]

FN13. Cf., e.g., Guinn v. United States, 238 U.S. 347, 364-65, 35 S.Ct. 926, 931, 59 L.Ed. 1340 (1915) (striking down grandfather clause that was a clear attempt to evade the Fifteenth Amendment).

FN14. It would be called "Burden of Going Forward with the Evidence," and the hero would ultimately be saved by his lawyer's adept use of Fed.R.Evid. 301.

FN15. In the words of Sir Isaac Newton, "[i]f I have seen further it is by standing on [the shoulders] of Giants." Letter to Robert Hooke, Feb. 5, 1675/1676.

Newton himself may have borrowed this phrase from Bernard of Chartres, who said something similar in the early twelfth century. Bernard in turn may have snatched it from Priscian, a sixth century grammarian. See Lotus Dev. Corp. v. Paperback Software Int'l, 740 F.Supp. 37, 77 n. 3 (D.Mass.1990).

The majority isn't, in fact, preventing the "evisceration" of Vanna White's existing rights; it's creating a new and much broader property right, a right unknown in California law. [FN16] It's replacing the existing balance between the interests of the celebrity and those of the public by a different balance, one substantially more favorable to the celebrity. Instead of having an exclusive right in her name, likeness, signature or voice, every famous person now has an exclusive right to anything that reminds the viewer of her. After all, that's all Samsung did: It used an inanimate object to remind people of White, to "evoke [her identity]." 971 F.2d at 1399. [FN17]

FN16. In fact, in the one California case raising the issue, the three state Supreme Court Justices who discussed this theory expressed serious doubts about it. Guglielmi v. Spelling-Goldberg Prods., 25 Cal.3d 860, 864 n. 5, 160 Cal.Rptr. 352, 355 n. 5, 603 P.2d 454, 457 n. 5 (1979) (Bird, C.J., concurring) (expressing skepticism about finding a property right to a celebrity's "personality" because it is "difficult to discern any easily applied definition for this amorphous term").

Neither have we previously interpreted California law to cover pure "identity." Midler v. Ford Motor Co., 849 F.2d 460 (9th Cir.1988), and Waits v. Frito-Lay, Inc., 978 F.2d 1093 (9th Cir.1992), dealt with appropriation of a celebrity's voice. See id. at 1100-01 (imitation of singing style, rather than voice, doesn't violate the right of publicity).

Motschenbacher v. R.J. Reynolds Tobacco Co., 498 F.2d 821 (9th Cir.1974), stressed that, though the plaintiff's likeness wasn't directly recognizable by itself, the surrounding circumstances would have made viewers think the likeness was the plaintiff's. Id. at 827; see also Moore v. Regents of the Univ. of Cal., 51 Cal.3d 120, 138, 271 Cal.Rptr. 146, 157, 793 P.2d 479, 490 (1990) (construing Motschenbacher as "hold [ing] that every person has a proprietary interest in his own likeness").

FN17. Some viewers might have inferred White was endorsing the product, but that's a different story. The right of publicity isn't aimed at or limited to false endorsements, Eastwood v. Superior Court, 149 Cal.App.3d 409, 419-20, 198 Cal.Rptr. 342, 348 (1983); that's what the Lanham Act is for.

Note also that the majority's rule applies even to advertisements that unintentionally remind people of someone. California law is crystal clear that the common-law right of publicity may be violated even by unintentional appropriations. Id. at 417 n. 6, 198 Cal.Rptr. at 346 n. 6; Fairfield v. American Photocopy Equipment Co., 138 Cal.App.2d 82, 87, 291 P.2d 194 (1955).

Consider how sweeping this new right is. What is it about the ad that makes people think of White? It's not the robot's wig, clothes or jewelry; there must be ten million blond women (many of them quasi-famous) who wear dresses and jewelry like White's. It's that the robot is posed near the "Wheel of Fortune" game board. Remove the game board from the ad, and no one would think of Vanna White. See Appendix. But once you include the game board, anybody standing beside it--a brunette woman, a man wearing women's clothes, a monkey in a wig and gown--would evoke White's image, precisely the way the robot did. It's the "Wheel of Fortune" set, not the robot's face or dress or jewelry that evokes White's image. The panel is giving White an exclusive right not in what she looks like or who she is, but in what she does for a living. [FN18]

FN18. Once the right of publicity is extended beyond specific physical characteristics, this will become a recurring problem: Outside name, likeness and voice, the things that most reliably remind the public of celebrities are the actions or roles they're famous for. A commercial with an astronaut setting foot on the moon would evoke the image of Neil Armstrong. Any masked man on horseback would remind people (over a certain age) of Clayton Moore. And any number of songs--"My Way," "Yellow Submarine," "Like a Virgin," "Beat It," "Michael, Row the Boat Ashore," to name only a few--instantly evoke an image of the person or group who made them famous, regardless of who is singing.

See also Carlos V. Lozano, West Loses Lawsuit over Batman TV Commercial, L.A. Times, Jan. 18, 1990, at B3 (Adam West sues over Batman-like character in commercial); Nurmi v. Peterson, 10 U.S.P.Q.2d 1775, 1989 WL 407484 (C.D.Cal.1989) (1950s TV movie hostess "Vampira" sues 1980s TV hostess "Elvira"); text accompanying notes 7-8 (lawsuits brought by Guy Lombardo, claiming big bands playing at New Year's Eve parties remind people of him, and by Uri Geller, claiming psychics who can bend metal remind people of him). Cf. Motschenbacher, where the claim was that viewers would think plaintiff was actually in the commercial, and not merely that the commercial reminded people of him.

*1516 This is entirely the wrong place to strike the balance. Intellectual property rights aren't free: They're imposed at the expense of future creators and of the public at large. Where would we be if Charles Lindbergh had an exclusive right in the concept of a heroic solo aviator? If Arthur Conan Doyle had gotten a copyright in the idea of the detective story, or Albert Einstein had patented the theory of relativity? If every author and celebrity had been given the right to keep people from mocking them or their work? Surely this would have made the world poorer, not richer, culturally as well as economically. [FN19]

FN19. See generally Gordon, supra note 11; see also Michael Madow, Private Ownership of Public Image: Popular Culture and Publicity Rights, 81 Cal.L.Rev. 125, 201-03 (1993) (an excellent discussion).

This is why intellectual property law is full of careful balances between what's set aside for the owner and what's left in the public domain for the rest of us: The relatively short life of patents; the longer, but finite, life of copyrights; copyright's idea-expression dichotomy; the fair use doctrine; the prohibition on copyrighting facts; the compulsory license of television broadcasts and musical compositions; federal preemption of overbroad state intellectual property laws; the nominative use doctrine in trademark law; the right to make soundalike recordings. [FN20] All of these diminish an intellectual property owner's rights. All let the public use something created by someone else. But all are necessary to maintain a free environment in which creative genius can flourish.

FN20. See 35 U.S.C. § 154 (duration of patent); 17 U.S.C. §§ 302- 305 (duration of copyright); 17 U.S.C. § 102(b) (idea-expression dichotomy); 17 U.S.C. § 107 (fair use); Feist Pubs., Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, ----, 111 S.Ct. 1282, 1288, 113 L.Ed.2d 358 (1991) (no copyrighting facts); 17 U.S.C. §§ 115, 119(b) (compulsory licenses); Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 109 S.Ct. 971, 103 L.Ed.2d 118 (1989) (federal preemption); New Kids on the Block v. News America Publishing, Inc., 971 F.2d 302, 306-308 (9th Cir.1992) (nominative use); 17 U.S.C. § 114(b) (soundalikes); accord G.S. Rasmussen & Assocs. v. Kalitta Flying Serv., Inc., 958 F.2d 896, 900 n. 7 (9th Cir.1992); Daniel A. Saunders, Comment, Copyright Law's Broken Rear Window, 80 Cal.L.Rev. 179, 204-05 (1992). But see Midler v. Ford Motor Co., 849 F.2d 460 (9th Cir.1988).

The intellectual property right created by the panel here has none of these essential limitations: No fair use exception; no right to parody; no idea- expression dichotomy. It impoverishes the public domain, to the detriment of future creators and the public at large. Instead of well-defined, limited characteristics such as name, likeness or voice, advertisers will now have to cope with vague claims of "appropriation of identity," claims often made by people with a wholly exaggerated sense of their own fame and significance. See pp. 1512-13 & notes 1-10 supra. Future Vanna Whites might not get the chance to create their personae, because their employers may fear some celebrity will claim the persona is too similar to her own. [FN21] The public will be robbed of parodies of celebrities, and *1517 our culture will be deprived of the valuable safety valve that parody and mockery create.

FN21. If Christian Slater, star of "Heathers," "Pump up the Volume," "Kuffs," and "Untamed Heart"--and alleged Jack Nicholson clone--appears in a commercial, can Nicholson sue? Of 54 stories on LEXIS that talk about Christian Slater, 26 talk about Slater's alleged similarities to Nicholson. Apparently it's his nasal wisecracks and killer smiles, St. Petersburg Times, Jan. 10, 1992, at 13, his eyebrows, Ottawa Citizen, Jan. 10, 1992, at E2, his sneers, Boston Globe, July 26, 1991, at 37, his menacing presence, USA Today, June 26, 1991, at 1D, and his sing-song voice, Gannett News Service, Aug. 27, 1990 (or, some say, his insinuating drawl, L.A. Times, Aug. 22, 1990, at F5). That's a whole lot more than White and the robot had in common.

Moreover, consider the moral dimension, about which the panel majority seems to have gotten so exercised. Saying Samsung "appropriated" something of White's begs the question: Should White have the exclusive right to something as broad and amorphous as her "identity"? Samsung's ad didn't simply copy White's schtick--like all parody, it created something new. [FN22] True, Samsung did it to make money, but White does whatever she does to make money, too; the majority talks of "the difference between fun and profit," 971 F.2d at 1401, but in the entertainment industry fun is profit. Why is Vanna White's right to exclusive for-profit use of her persona--a persona that might not even be her own creation, but that of a writer, director or producer-- superior to Samsung's right to profit by creating its own inventions? Why should she have such absolute rights to control the conduct of others, unlimited by the idea-expression dichotomy or by the fair use doctrine?

FN22. Cf. New Kids on the Block v. News America Publishing, Inc., 971 F.2d 302, 307 n. 6 (9th Cir.1992) ("Where the infringement is small in relation to the new work created, the fair user is profiting largely from his own creative efforts rather than free-riding on another's work.").

To paraphrase only slightly Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340, ---- - ----, 111 S.Ct. 1282, 1289-90, 113 L.Ed.2d 358 (1991), it may seem unfair that much of the fruit of a creator's labor may be used by others without compensation. But this is not some unforeseen byproduct of our intellectual property system; it is the system's very essence. Intellectual property law assures authors the right to their original expression, but encourages others to build freely on the ideas that underlie it. This result is neither unfair nor unfortunate: It is the means by which intellectual property law advances the progress of science and art. We give authors certain exclusive rights, but in exchange we get a richer public domain. The majority ignores this wise teaching, and all of us are the poorer for it. [FN23]

FN23. The majority opinion has already earned some well-deserved criticisms on this score. Stephen R. Barnett, In Hollywood's Wheel of Fortune, Free Speech Loses a Turn, Wall St. J., Sept. 28, 1992, at A14; Stephen R. Barnett, Wheel of Misfortune for Advertisers: Ninth Circuit Misreads the Law to Protect Vanna White's Image, L.A. Daily J., Oct. 5, 1992, at 6; Felix H. Kent, California Court Expands Celebrities' Rights, N.Y.L.J., Oct. 30, 1992, at 3 ("To speak of the 'evisceration' of such a questionable common law right in a case that has probably gone the farthest of any case in any court in the United States of America is more than difficult to comprehend"); Shapiro, supra note 1 ("A fat chef? A blond robot in an evening gown? How far will this go?" (citing Douglas J. Wood, an advertising lawyer)). See also Mark Alan Stamaty, Washingtoon, Wash. Post, Apr. 5, 1993, at A21.

IV

The panel, however, does more than misinterpret California law: By refusing to recognize a parody exception to the right of publicity, the panel directly contradicts the federal Copyright Act. Samsung didn't merely parody Vanna White. It parodied Vanna White appearing in "Wheel of Fortune," a copyrighted television show, and parodies of copyrighted works are governed by federal copyright law.

Copyright law specifically gives the world at large the right to make "fair use" parodies, parodies that don't borrow too much of the original. Fisher v. Dees, 794 F.2d 432, 435 (9th Cir.1986). Federal copyright law also gives the copyright owner the exclusive right to create (or license the creation of) derivative works, which include parodies that borrow too much to qualify as "fair use." See Acuff-Rose Music, Inc. v. Campbell, 972 F.2d 1429, 1434-35 (6th Cir.1992). [FN24] When Mel Brooks, for instance, decided to parody Star Wars, he *1518 had two options: He could have stuck with his fair use rights under 17 U.S.C. § 107, or he could have gotten a license to make a derivative work under 17 U.S.C. § 106(b) from the holder of the Star Wars copyright. To be safe, he probably did the latter, but once he did, he was guaranteed a perfect right to make his movie. [FN25]

FN24. How much is too much is a hotly contested question, but one thing is clear: The right to make parodies belongs either to the public at large or to the copyright holder, not to someone who happens to appear in the copyrighted work.

FN25. See Spaceballs (1987). Compare Madonna: Truth or Dare (1991) with Medusa: Dare to Be Truthful (1991); Loaded Weapon I (1993) with Lethal Weapon (1987); Young Frankenstein (1974) with Bride of Frankenstein (1935).

The majority's decision decimates this federal scheme. It's impossible to parody a movie or a TV show without at the same time "evok[ing]" the "identit[ies]" of the actors. [FN26] You can't have a mock Star Wars without a mock Luke Skywalker, Han Solo and Princess Leia, which in turn means a mock Mark Hamill, Harrison Ford and Carrie Fisher. You can't have a mock Batman commercial without a mock Batman, which means someone emulating the mannerisms of Adam West or Michael Keaton. See Carlos V. Lozano, West Loses Lawsuit over Batman TV Commercial, L.A. Times, Jan. 18, 1990, at B3 (describing Adam West's right of publicity lawsuit over a commercial produced under license from DC Comics, owner of the Batman copyright). [FN27] The public's right to make a fair use parody and the copyright owner's right to license a derivative work are useless if the parodist is held hostage by every actor whose "identity" he might need to "appropriate."

FN26. 17 U.S.C. § 301(b)(1) limits the Copyright Act's preemptive sweep to subject matter "fixed in any tangible medium of expression," but White's identity--her look as the hostess of Wheel of Fortune--is definitely fixed: It consists entirely of her appearances in a fixed, copyrighted TV show. See Baltimore Orioles v. Major League Baseball Players Ass'n, 805 F.2d 663, 675 & n. 22 (7th Cir.1986).

FN27. Cf. Lugosi v. Universal Pictures, 25 Cal.3d 813, 827-28, 160 Cal.Rptr. 323, 331-32, 603 P.2d 425, 433-34 (1979) (Mosk, J., concurring) (pointing out that rights in characters should be owned by the copyright holder, not the actor who happens to play them); Baltimore Orioles, 805 F.2d at 674-79 (baseball players' right of publicity preempted by copyright law as to telecasts of games).

Our court is in a unique position here. State courts are unlikely to be particularly sensitive to federal preemption, which, after all, is a matter of first concern to the federal courts. The Supreme Court is unlikely to consider the issue because the right of publicity seems so much a matter of state law. That leaves us. It's our responsibility to keep the right of publicity from taking away federally granted rights, either from the public at large or from a copyright owner. We must make sure state law doesn't give the Vanna Whites and Adam Wests of the world a veto over fair use parodies of the shows in which they appear, or over copyright holders' exclusive right to license derivative works of those shows. In a case where the copyright owner isn't even a party-- where no one has the interests of copyright owners at heart--the majority creates a rule that greatly diminishes the rights of copyright holders in this circuit.

V

The majority's decision also conflicts with the federal copyright system in another, more insidious way. Under the dormant Copyright Clause, state intellectual property laws can stand only so long as they don't "prejudice the interests of other States." Goldstein v. California, 412 U.S. 546, 558, 93 S.Ct. 2303, 2310, 37 L.Ed.2d 163 (1973). A state law criminalizing record piracy, for instance, is permissible because citizens of other states would "remain free to copy within their borders those works which may be protected elsewhere." Id. But the right of publicity isn't geographically limited. A right of publicity created by one state applies to conduct everywhere, so long as it involves a celebrity domiciled in that state. If a Wyoming resident creates an ad that features a California domiciliary's name or likeness, he'll be subject to California right of publicity law even if he's careful to keep the ad from being shown in California. See Acme Circus Operating Co. v. Kuperstock, 711 F.2d 1538, 1540 (11th Cir.1983); Groucho Marx Prods. v. Day and Night Co., 689 F.2d 317, 320 (2d Cir.1982); see*1519also Factors Etc. v. Pro Arts, 652 F.2d 278, 281 (2d Cir.1981).

The broader and more ill-defined one state's right of publicity, the more it interferes with the legitimate interests of other states. A limited right that applies to unauthorized use of name and likeness probably does not run afoul of the Copyright Clause, but the majority's protection of "identity" is quite another story. Under the majority's approach, any time anybody in the United States--even somebody who lives in a state with a very narrow right of publicity--creates an ad, he takes the risk that it might remind some segment of the public of somebody, perhaps somebody with only a local reputation, somebody the advertiser has never heard of. See note 17 supra (right of publicity is infringed by unintentional appropriations). So you made a commercial in Florida and one of the characters reminds Reno residents of their favorite local TV anchor (a California domiciliary)? Pay up.

This is an intolerable result, as it gives each state far too much control over artists in other states. No California statute, no California court has actually tried to reach this far. It is ironic that it is we who plant this kudzu in the fertile soil of our federal system.

VI

Finally, I can't see how giving White the power to keep others from evoking her image in the public's mind can be squared with the First Amendment. Where does White get this right to control our thoughts? The majority's creation goes way beyond the protection given a trademark or a copyrighted work, or a person's name or likeness. All those things control one particular way of expressing an idea, one way of referring to an object or a person. But not allowing any means of reminding people of someone? That's a speech restriction unparalleled in First Amendment law. [FN28]

FN28. Just compare the majority's holding to the intellectual propertylaws upheld by the Supreme Court. The Copyright Act is constitutional precisely because of the fair use doctrine and the idea-expression dichotomy, Harper & Row v. Nation Enterprises, 471 U.S. 539, 560, 105 S.Ct. 2218, 2230, 85 L.Ed.2d 588 (1985), two features conspicuously absent from the majority's doctrine. The right of publicity at issue in Zacchini v. Scripps-Howard Broadcasting Co., 433 U.S. 562, 576, 97 S.Ct. 2849, 2857-58, 53 L.Ed.2d 965 (1977), was only the right to "broadcast of petitioner's entire performance," not "the unauthorized use of another's name for purposes of trade." Id. Even the statute upheld in San Francisco Arts & Athletics, Inc. v. United States Olympic Comm., 483 U.S. 522, 530, 107 S.Ct. 2971, 2977, 97 L.Ed.2d 427 (1987), which gave the USOC sweeping rights to the word "Olympic," didn't purport to protect all expression that reminded people of the Olympics.

What's more, I doubt even a name-and-likeness-only right of publicity can stand without a parody exception. The First Amendment isn't just about religion or politics--it's also about protecting the free development of our national culture. Parody, humor, irreverence are all vital components of the marketplace of ideas. The last thing we need, the last thing the First Amendment will tolerate, is a law that lets public figures keep people from mocking them, or from "evok[ing]" their images in the mind of the public. 971 F.2d at 1399. [FN29]

FN29. The majority's failure to recognize a parody exception to the right of publicity would apply equally to parodies of politicians as of actresses. Consider the case of Wok Fast, a Los Angeles Chinese food delivery service, which put up a billboard with a picture of then-L.A. Police Chief Daryl Gates and the text "When you can't leave the office. Or won't." (This was an allusion to Chief Gates's refusal to retire despite pressure from Mayor Tom Bradley.) Gates forced the restaurant to take the billboard down by threatening a right of publicity lawsuit. Leslie Berger, He Did Leave the Office--And Now Sign Will Go, Too, L.A. Times, July 31, 1992, at B2.

See also Samsung Has Seen the Future: Brace Youself, Adweek, Oct. 3, 1988, at 26 (ER 72) (Samsung planned another ad that would show a dollar bill with Richard Nixon's face on it and the caption 'Dollar bill, 2025 A.D..,' but Nixon refused permission to use his likeness); Madow supra note 19, at 142-46 (discussing other politically and culturally charged parodies).

The majority dismisses the First Amendment issue out of hand because Samsung's ad was commercial speech. Id. at 1401 & n. 3. So what? Commercial speech may be less protected by the First Amendment than noncommercial speech, but less protected means protected nonetheless. Central *1520Hudson Gas & Elec. Corp. v. Public Serv. Comm'n, 447 U.S. 557, 100 S.Ct. 2343, 65 L.Ed.2d 341 (1980). And there are very good reasons for this. Commercial speech has a profound effect on our culture and our attitudes. Neutral-seeming ads influence people's social and political attitudes, and themselves arouse political controversy. [FN30] "Where's the Beef?" turned from an advertising catchphrase into the only really memorable thing about the 1984 presidential campaign. [FN31] Four years later, Michael Dukakis called George Bush "the Joe Isuzu of American politics." [FN32]

FN30. See, e.g., Bruce Horovitz, Nike Does It Again; Firm Targets Blacks with a Spin on "Family Values", L.A. Times, Aug. 25, 1992, at D1 ("The ad reinforces a stereotype about black fathers" (quoting Lawrence A. Johnson of Howard University)); Gaylord Fields, Advertising Awards-Show Mania: CEBA Awards Honors Black-Oriented Advertising, Back Stage, Nov. 17, 1989, at 1 (quoting the Rev. Jesse Jackson as emphasizing the importance of positive black images in advertising); Debra Kaufman, Quality of Hispanic Production Rising to Meet Clients' Demands, Back Stage, July 14, 1989, at 1 (Hispanic advertising professional stresses importance of positive Hispanic images in advertising); Marilyn Elias, Medical Ads Often Are Sexist, USA Today, May 18, 1989, at 1D ("There's lots of evidence that this kind of ad reinforces stereotypes" (quoting Julie Edell of Duke University)).

FN31. See Wendy's Kind of Commercial; "Where's the Beef" Becomes National Craze, Broadcasting, Mar. 26, 1984, at 57.

FN32. See Gregory Gordon, Candidates Look for Feedback Today, UPI, Sept. 26, 1988.

In our pop culture, where salesmanship must be entertaining and entertainment must sell, the line between the commercial and noncommercial has not merely blurred; it has disappeared. Is the Samsung parody any different from a parody on Saturday Night Live or in Spy Magazine? Both are equally profit-motivated. Both use a celebrity's identity to sell things--one to sell VCRs, the other to sell advertising. Both mock their subjects. Both try to make people laugh. Both add something, perhaps something worthwhile and memorable, perhaps not, to our culture. Both are things that the people being portrayed might dearly want to suppress. See notes 1 & 29 supra.

Commercial speech is a significant, valuable part of our national discourse. The Supreme Court has recognized as much, and has insisted that lower courts carefully scrutinize commercial speech restrictions, but the panel totally fails to do this. The panel majority doesn't even purport to apply the Central Hudson test, which the Supreme Court devised specifically for determining whether a commercial speech restriction is valid. [FN33] The majority doesn't ask, as Central Hudson requires, whether the speech restriction is justified by a substantial state interest. It doesn't ask whether the restriction directly advances the interest. It doesn't ask whether the restriction is narrowly tailored to the interest. See id. at 566, 100 S.Ct. at 2351. [FN34] These are all things the Supreme Court told us--in no uncertain terms--we must consider; the majority opinion doesn't even mention them. [FN35]

FN33. Its only citation to Central Hudson is a seeming afterthought, buried in a footnote, and standing only for the proposition that commercial speech is less protected under the First Amendment. See 971 F.2d at 1401 n. 3.

FN34. See also Board of Trustees v. Fox, 492 U.S. 469, 476-81, 109 S.Ct. 3028, 3032-35, 106 L.Ed.2d 388 (1989) (reaffirming "narrowly tailored" requirement, but making clear it's not a "least restrictive means" test).

The government has a freer hand in regulating false or misleading commercial speech, but this isn't such a regulation. Some "appropriations" of a person's "identity" might misleadingly suggest an endorsement, but the mere possibility that speech might mislead isn't enough to strip it of First Amendment protection. See Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 644, 105 S.Ct. 2265, 2278, 85 L.Ed.2d 652 (1985).

FN35. Neither does it discuss whether the speech restriction is unconstitutionally vague. Posadas de P.R. Assocs. v. Tourism Co., 478 U.S. 328, 347, 106 S.Ct. 2968, 2980, 92 L.Ed.2d 266 (1986).

Process matters. The Supreme Court didn't set out the Central Hudson test for its health. It devised the test because it saw lower courts were giving the First Amendment short shrift when confronted with commercial speech. See Central Hudson, 447 U.S. at 561-62, 567-68, 100 S.Ct. at 2348-49, 2352. The Central Hudson test was an attempt to constrain lower courts' discretion, to focus judges' thinking *1521 on the important issues--how strong the state interest is, how broad the regulation is, whether a narrower regulation would work just as well. If the Court wanted to leave these matters to judges' gut feelings, to nifty lines about "the difference between fun and profit," 971 F.2d at 1401, it could have done so with much less effort.

Maybe applying the test would have convinced the majority to change its mind; maybe going through the factors would have shown that its rule was too broad, or the reasons for protecting White's "identity" too tenuous. Maybe not. But we shouldn't thumb our nose at the Supreme Court by just refusing to apply its test.

VII

For better or worse, we are the Court of Appeals for the Hollywood Circuit. Millions of people toil in the shadow of the law we make, and much of their livelihood is made possible by the existence of intellectual property rights. But much of their livelihood--and much of the vibrancy of our culture--also depends on the existence of other intangible rights: The right to draw ideas from a rich and varied public domain, and the right to mock, for profit as well as fun, the cultural icons of our time.

In the name of avoiding the "evisceration" of a celebrity's rights in her image, the majority diminishes the rights of copyright holders and the public at large. In the name of fostering creativity, the majority suppresses it. Vanna White and those like her have been given something they never had before, and they've been given it at our expense. I cannot agree.


Copyrightable Subject Matter - Originality & Compilation

158 F.3d 674

1998 Copr.L.Dec. P 27,826, 48 U.S.P.Q.2d 1560

(Cite as: 158 F.3d 674)

 MATTHEW BENDER & COMPANY, INC., Plaintiff,

Hyperlaw, Inc., Intervenor-Plaintiff-Appellee,

v.

WEST PUBLISHING CO. and West Publishing Corporation, Defendants-Appellants. 

(West Publishing Co. I)

Docket No. 97-7910.

United States Court of Appeals,

Second Circuit.

Argued March 16, 1998.

Before: CARDAMONE and JACOBS, Circuit Judges, and SWEET, [FN*] District Judge.

Judge SWEET dissents in a separate opinion.

JACOBS, Circuit Judge:

West Publishing Co. and West Publishing Corp. (collectively "West") publish compilations of reports of judicial opinions ("case reports"). Each case report consists of the text of the judicial opinion with enhancements that for the purposes of this case can be put in two categories: (i) independently composed features, such as a syllabus (which digests and heralds the opinion's general holdings), headnotes (which summarize the specific points of law recited in each opinion), and key numbers (which categorize points of law into different legal topics and subtopics), and (ii) additions of certain factual information *677 to the text of the opinions, including parallel or alternative citations to cases, attorney information, and data on subsequent procedural history. HyperLaw, Inc. publishes compact disc-read only memory ("CD-ROM") compilations of Supreme Court and United States Court of Appeals decisions, and intervened as a plaintiff to seek a judgment declaring that the individual West case reports that are left after redaction of the first category of alterations (i.e., the independently composed features), do not contain copyrightable material. West now appeals from a judgment of the United States District Court for the Southern District of New York (Martin, J.), following a bench trial, granting declaratory judgment in favor of HyperLaw. Matthew Bender & Co. v. West Publishing Co., No. 94 Civ. 0589, 1997 WL 266972 (S.D.N.Y. May 19, 1997).

It is true that neither novelty nor invention is a requisite for copyright protection, but minimal creativity is required. Aside from its syllabi, headnotes and key numbers--none of which HyperLaw proposes to copy--West makes four different types of changes to judicial opinions that it claimed at trial are copyrightable: (i) rearrangement of information specifying the parties, court, and date of decision; (ii) addition of certain information concerning counsel; (iii) annotation to reflect subsequent procedural developments such as amendments and denials of rehearing; and (iv) editing of parallel and alternate citations to cases cited in the opinions in order to redact ephemeral and obscure citations and to add standard permanent citations (including West reporters). All of West's alterations to judicial opinions involve the addition and arrangement of facts, or the rearrangement of data already included in the opinions, and therefore any creativity in these elements of West's case reports lies in West's selection and arrangement of this information. In light of accepted legal conventions and other external constraining factors, West's choices on selection and arrangement can reasonably be viewed as obvious, typical, and lacking even minimal creativity. Therefore, we cannot conclude that the district court clearly erred in finding that those elements that HyperLaw seeks to copy from West's case reports are not copyrightable, and affirm.

BACKGROUND

West obtains the text of judicial opinions directly from courts. It alters these texts as described above to create a case report, and then publishes these case reports (first in advance sheets, then in bound volumes) in different series of "case reporters." [FN1] These case reporter series cover all state and federal courts and are collectively known as West's "National Reporter System." Two series of case reporters are at issue in this case: the Supreme Court Reporter, which contains, inter alia, all Supreme Court opinions and memorandum decisions; and the Federal Reporter, which contains, inter alia, all United States Court of Appeals opinions designated for publication, as well as tables showing the disposition of unpublished cases.

FN1. West also functions as the publisher of slip opinions--i.e., the official versions of court opinions--for the Fifth and Eleventh Circuits, and West does not claim a copyright for any alterations it makes to those slip opinions other than its syllabi, headnotes, and key numbers.

HyperLaw markets two compilations that cover approximately the same ground: Supreme Court on Disc, an annual CD-ROM disc containing opinions of the United States Supreme Court starting from 1990; and Federal Appeals on Disc, a quarterly CD-ROM disc containing nearly all opinions (published and unpublished) of the United States Courts of Appeals from January 1993 on. [FN2] Currently, HyperLaw obtains the text of the opinions directly from the courts. However, HyperLaw intends to expand its CD-ROM product to include any recent cases it could not obtain directly from the courts (and attorney information that is omitted from slip opinions by certain circuits), as well as pre-1990 Supreme Court cases and pre-1993 court of appeals cases that are cited in recent Supreme Court and court of appeals cases (so that users can jump to those cases). HyperLaw *678 intends to achieve this expansion by copying West's case reports (after redacting the syllabi, headnotes and key numbers) from the Supreme Court Reporter and the Federal Reporter. The total number of opinions HyperLaw intends to copy is unclear; but HyperLaw's President Alan Sugarman testified that in time it could reach 50 percent of Supreme Court and court of appeals decisions published by West.

FN2. The record seems to indicate that since the commencement of this suit, HyperLaw has combined these two products into one.

Following the commencement of suit by Matthew Bender & Co. in the United States District Court for the Southern District of New York seeking a judgment declaring that Bender's insertion of star pagination to West's case reporters in its CD-ROM version of judicial opinions did not infringe West's copyright, HyperLaw intervened and requested the same relief. In addition, HyperLaw sought a declaration that HyperLaw's redacted versions of West's case reports contain no copyrightable material and thus may be copied without infringement. On the star pagination issue, the district court granted summary judgment to Bender and HyperLaw, and final judgment was entered pursuant to Fed.R.Civ.P. 54(b). (We affirm that ruling in a separate opinion issued today). See Matthew Bender & Co. v. West Publ'g Co., 158 F.3d 693 (2d Cir.1998). But the district court denied summary judgment allowing HyperLaw to copy redacted versions of West's case reports, and conducted a bench trial on this issue.

The principal trial witness was Donna Bergsgaard, the manager of West's manuscript department. She specified four kinds of alterations made by West to the opinions that it publishes in the Supreme Court Reporter and Federal Reporter and that HyperLaw intends to copy: (i) the arrangement of prefatory information, such as parties, court, and date of decision; (ii) the selection and arrangement of the attorney information; (iii) the arrangement of information relating to subsequent procedural developments; and (iv) the selection of parallel and alternative citations.

Following the bench trial, the district court ruled that West's revisions to judicial opinions were merely trivial variations from the public domain works, and that West's case reports were therefore not copyrightable as derivative works. Matthew Bender & Co., 1997 WL 266972 at *4. In reaching this conclusion, the district court reviewed each type of alteration and found that "West does not have a protectible interest in any of the portions of the opinions that HyperLaw copies or intends to copy" because West's alterations lack even minimal creativity. Id.

DISCUSSION

I

***

II

[3] Works of the federal government are not subject to copyright protection; the text of judicial decisions may therefore be copied at will. 17 U.S.C. § 105. Federal judicial opinions may, however, form part of a compilation. The Copyright Act defines "compilation" as "a work formed by the collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship." 17 U.S.C. § 101. West has filed a certificate of copyright registration for every paperbacked advance sheet and bound permanent volume of the Supreme Court Reporter and Federal Reporter, and each certificate characterizes the copyrighted work as a "compilation." Under Feist Publications, Inc. v. Rural Telephone Serv. Co., 499 U.S. 340, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991), an infringement claim for a compilation has two elements: "(1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original." Id. at 361, 111 S.Ct. at 1296.

But HyperLaw has not signaled its intent to copy the text of every case included in particular volumes of West case reporters or the case reporters' selection and arrangement of cases; [FN3] HyperLaw's intent is to copy particular, though numerous, individual *680 case reports. HyperLaw seeks a declaratory judgment that these case reports--after removal of the syllabus, headnotes, and key numbers--contain no copyrightable material.

FN3. Whether insertion of star pagination to West's case reporters amounts to copying of West's arrangement of cases is a separate question we address in the other opinion issued today. See Matthew Bender & Co. v. West Publ'g Co., 158 F.3d at 693.

A HyperLaw contends that each case report should be analyzed as a derivative work, which is defined under the Copyright Act as, inter alia, "[a] work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship." 17 U.S.C. § 101. The district court adopted this view and analyzed the individual case report as a derivative work, but found it wanting in the requisite originality. West contends that each case report is a compilation, i.e., a collection of facts that have been distinctively selected and arranged. No one claims that a case report is anything other than a derivative work or a compilation.

The House Report on the 1976 Copyright Act distinguishes between a derivative work and a compilation:

Between them the terms ... comprehend every copyrightable work that employs preexisting material or data of any kind. There is necessarily some overlapping between the two, but they basically represent different concepts. A "compilation" results from a process of selecting, bringing together, organizing, and arranging previously existing material of all kinds, regardless of whether the individual items in the material have been or ever could have been subject to copyright. A "derivative work," on the other hand, requires a process of recasting, transforming, or adapting "one or more preexisting works"; the "preexisting work" must come within the general subject matter of copyright set forth in section 102, regardless of whether it is or was ever copyrighted.

H.R.Rep. No. 94-1476, at 57 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5670; see also 1 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 3.02, at 3-5 (1998) ("[W]hile a compilation consists merely of the selection and arrangement of pre-existing material without any internal changes in such material, a derivative work involves recasting or transformation, i.e., changes in the pre-existing material, whether or not it is juxtaposed in an arrangement with other pre-existing materials.").

We think that West's case reports have elements of both types of works. West compiles (and selects) the factual information it includes in each case report--the type of task usually involved in creating a compilation. On the other hand, West rearranges prefatory and citation information included in judicial opinions, steps that tend toward the making of a derivative work rather than a compilation. In addition, all of West's decisions are constrained by West's main project, which is to enhance the judicial opinions without altering their texts in any substantive or appreciable way.

[4] We need not categorize West's case reports as either derivative works or compilations in order to decide this case. Copyright protection is unavailable for both derivative works and compilations alike unless, when analyzed as a whole, they display sufficient originality so as to amount to an "original work of authorship." See 17 U.S.C. § 101 (defining a "derivative work", inter alia, as a work containing alterations "which, as a whole, represent an original work of authorship"); id. (defining a compilation as requiring that "the resulting work as a whole constitutes an original work of authorship"). The originality required for copyright protection is essentially the same. See Feist, 499 U.S. at 358, 111 S.Ct. at 1294 ("Originality requires only that the author make the selection or arrangement independently ... and that it display some minimal level of creativity."); L. Batlin & Son, Inc. v. Snyder, 536 F.2d 486, 490-91 (2d Cir.1976) (in banc ) ("[W]hile a copy of something in the public domain will not, if it be merely a copy, support a copyright, a distinguishable variation will. * * * [T]o support a copyright there must be at least some substantial variation, not merely a trivial variation such as might occur in the translation to a different medium."). As West and HyperLaw seemingly agree, the question presented is whether West's alterations to the case reports, when considered collectively, demonstrate sufficient originality and creativity to be copyrightable.

*681 B

[5] The district court found that the elements of the West case reports for which West seeks copyright protection lack sufficient originality or creativity to be protectable--whether considered separately or together. Because we treat the question of whether particular elements of a work demonstrate sufficient originality and creativity to warrant copyright protection as a question for the factfinder--here the judge--we will not reverse the district court's findings unless clearly erroneous. See, e.g., Victor Lalli Enters., Inc. v. Big Red Apple, Inc., 936 F.2d 671, 673 (2d Cir.1991) (per curiam ) ("Generally, we review a district court's determination of whether a work is sufficiently original to merit copyright protection under the clearly erroneous standard."); Financial Information, Inc. v. Moody's Investors Serv., Inc., 808 F.2d 204, 207-08 (2d Cir.1986) (same); see also Woods v. Bourne Co., 60 F.3d 978, 991 (2d Cir.1995) (noting that our review of originality determination is for clear error); Weissmann v. Freeman, 868 F.2d 1313, 1322 (2d Cir.1989) (holding that the district court's finding of lack of originality or variation in derivative work was reviewable for clear error). The dissent (at [page 1], footnote 1) argues that de novo review would be more appropriate, and that our precedents to the contrary are doubtful in light of Feist. Feist, however, did not address standard of review, and the clear error standard retains vitality in our precedents, both before and after Feist. In 1995, we acknowledged that the question of copyrightability entails the kind of conclusion that would often justify de novo review, but that most courts, including this Court, review for clear error. See Woods, 60 F.3d at 991 (Feinberg, J.) (citing 1 William F. Patry, Copyright Law and Practice 145 n. 106 (1994) (cataloguing cases)).

[6] The only elements of a work that are entitled to copyright protection are those that are original. See Feist, 499 U.S. at 361, 111 S.Ct. at 1296; Mid America Title Co. v. Kirk, 59 F.3d 719, 721 (7th Cir.1995). The "originality" standard requires that the work result from "independent creation" and that the author demonstrate that such creation entails a "modicum of creativity." See Feist, 499 U.S. at 346, 111 S.Ct. at 1288; see also Key Publications, Inc. v. Chinatown Today Publ'g Enters., Inc., 945 F.2d 509, 512-13 (2d Cir.1991) ("Simply stated, original means not copied, and exhibiting a minimal amount of creativity.").

[7] According to West, the required originality and creativity inhere in four elements of the case reports that HyperLaw intends to copy:

(i) the arrangement of information specifying the parties, court, and date of decision;

(ii) the selection and arrangement of the attorney information;

(iii) the arrangement of information relating to subsequent procedural developments such as amendments and denials of rehearing; and

(iv) the selection of parallel and alternative citations. [FN4]

FN4. West initially claimed some creativity in its corrections to the text of opinions, but it has abandoned this claim, presumably because these corrections either are trivial (i.e., punctuation or spelling), or else (nearly always) approved by the courts by order or informal means.

Each element either adds or rearranges preexisting facts, in themselves unprotectable, and so West is not entitled to protection for these elements of its case reports unless it demonstrates creativity in the selection or arrangement of those facts. See Feist, 499 U.S. at 348, 111 S.Ct. at 1289. Because many of the cases relating to compilations assess the creativity involved in selecting and arranging information, we look to those cases for guidance.

[8] The Copyright Act protects original and minimally creative selection of preexisting, unprotected materials (such as facts) for inclusion in a work, as well as original and creative arrangement of those materials. See Eckes v. Card Prices Update, 736 F.2d 859, 863 (2d Cir.1984) ("[S]electivity in including otherwise non-protected information can be protected expression."); 1 Nimmer, supra, § 3.04[B][2], at 3-31 ("If originally combined, a selection or arrangement of underlying materials that are themselves unoriginal*682may support copyright protection."). Feist tells us:

The compilation author typically chooses which facts to include, in what order to place them, and how to arrange the collected data so that they may be used effectively by readers. These choices as to selection and arrangement, so long as they are made independently by the compiler and entail a minimal degree of creativity, are sufficiently original that Congress may protect such compilations through the copyright laws.

Feist, 499 U.S. at 348, 111 S.Ct. at 1289 (citations omitted). [FN5] However, not every such compilation or decision on selection or arrangement is sufficiently creative to be protected.

FN5. We have previously explained that the protection of compilations "is consistent with the objectives of the copyright law ... to promote the advancement of knowledge and learning by giving authors economic incentives ... to labor on creative, knowledge-enriching works" because compilations "that devise new and useful selections and arrangements of information ... contribute to public knowledge by providing cheaper, easier, and better organized access to information." CCC Info. Servs., Inc. v. Maclean Hunter Mkt. Reports, Inc., 44 F.3d 61, 65-66 (2d Cir.1994). Without that financial incentive, such compilations would not be created. Id. at 66. Nevertheless, it is not a goal of copyright law to promote the production of compilations which lack sufficient creativity.

[9] The creative spark is missing where: (i) industry conventions or other external factors so dictate selection that any person composing a compilation of the type at issue would necessarily select the same categories of information, see, e.g., Victor Lalli Enters., 936 F.2d at 672 (charts of winning numbers in illegal gambling operations); see also Mid America Title Co., 59 F.3d at 722 (title examiner's report; "[s]electing which facts to include in this compilation of data was not a matter of discretion based on Mid America's personal judgment or taste, but instead it was a matter of convention and strict industry standards"), or (ii) the author made obvious, garden- variety, or routine selections, see Feist, 499 U.S. at 362, 111 S.Ct. at 1296 (concluding that the selection and arrangement of a white pages in which the publisher had chosen to include name, town and telephone number, and to arrange these listings in alphabetical order were entirely "typical" and "garden-variety"); BellSouth Adver. & Publ'g Corp. v. Donnelley Info. Publ'g, Inc., 999 F.2d 1436, 1444 (11th Cir.1993) (in banc ) (holding that the categories for the organization of material in a yellow pages directory lacked creativity where many of the selected headings, such as "Attorneys" or "Banks" are so obvious and many others "result from certain standard industry practices").

Thus, when it comes to the selection or arrangement of information, creativity inheres in making non-obvious choices from among more than a few options. See, e.g., Hearn v. Meyer, 664 F.Supp. 832, 847 (S.D.N.Y.1987) ("Copyright protection is afforded rarely where a fact permits only a narrow continuum or spectrum of expression."). For example, in Kregos v. Associated Press, 937 F.2d 700, 704 (2d Cir.1991), the decision to express a pitcher's performance in terms of nine statistics from "at least scores of available statistics about pitching performance available to be calculated from the underlying data and therefore thousands of combinations of data that a selector can choose to include in a pitching form" was not necessarily obvious or self-evident. We therefore concluded that the district court erred in granting summary judgment on the uncopyrightability of the pitching forms. Id. at 704-05, 711; see also American Dental Ass'n v. Delta Dental Plans Ass'n, 126 F.3d 977, 979 (7th Cir.1997) (holding taxonomy of dental procedures creative after noting that they "could be classified ... in any of a dozen different ways"). However, selection from among two or three options, or of options that have been selected countless times before and have become typical, is insufficient. Protection of such choices would enable a copyright holder to monopolize widely-used expression and upset the balance of copyright law.

[10] In sum, creativity in selection and arrangement therefore is a function of (i) the total number of options available, (ii) external factors that limit the viability of certain options and render others non-creative, and (iii) *683 prior uses that render certain selections "garden variety." See, e.g., 1 Patry, supra, at 196 ("As a general principle, the greater the amount of material from which to select, coordinate, or arrange, the more likely it is that a compilation will be protectible. On the other hand, where less material is available, it is less likely that a compilation, even if original, will be protectible, since de minimis efforts, including selections, are not subject to copyright.").

C

We proceed to assess the originality and creativity underlying the elements of West's case reports that HyperLaw seeks to copy.

1. Captions, Courts, and Date Information

[11] West claims that originality inheres in the following enhancements:

. The format of the party names--the "caption"--is standardized by capitalizing the first named plaintiff and defendant to derive a "West digest title," and sometimes the party names are shortened (e.g., when one of the parties is a union, with its local and national affiliations, West might give only the local chapter number, and then insert etc.). [FN6]

FN6. West offered as evidence at trial memoranda to its editors concerning caption alterations. Review of these memoranda demonstrates that they are simply concerned with accurate presentation of caption information. For example, they clarify the accurate family name for parties of Chinese or Spanish origin so that the editor capitalizes the proper name in the caption. They also set forth a uniform system for abbreviating certain words, which is not original or copyrightable. See, e.g., Brief English Systems, Inc. v. Owen, 48 F.2d 555, 556 (2d Cir.1931) ("There is no literary merit in a mere system of condensing written words into less than the number of letters usually used to spell them out.").

. The name of the deciding court is restyled. E.g., West changes the slip opinion title of "United States Court of Appeals for the Second Circuit" to "United States Court of Appeals, Second Circuit."

. The dates the case was argued and decided are restyled. E.g., when the slip opinion gives the date on which the opinion was "filed," West changes the word "filed" to "decided."

. The caption, court, docket number, and date are presented in a particular order, and other information provided at the beginning of some slip opinions is deleted (such as the lower court information, which appears in the West case syllabus).

We do not think that the district court committed clear error in finding that these changes are insubstantial, unoriginal, and uncreative. Reference to a case by the names of the first plaintiff and first defendant is a garden variety decision. See, e.g., The Bluebook: A Uniform System of Citation rule 10.2.1(a) (16th ed.1996) (hereinafter "The Bluebook "). The same is true of West's manner of shortening long case names. See, e.g., id. rule 10.2.1(i) ("Cite a union name exactly as given in the official reporter, except that: (i) only the smallest unit should be cited ... (ii) all craft or industry designations ... should be omitted...."). Even if these choices regarding which words to capitalize and shorten to form the West digest title were an original inspiration, we doubt the decisions to shorten the titles or capitalize certain letters would be copyrightable. See Secure Servs. Tech., Inc. v. Time & Space Processing, Inc., 722 F.Supp. 1354, 1363 n. 25 (E.D.Va.1989) ("Size of print ... is not copyrightable."); 37 C.F.R. § 202.1(a) (1998) ("Words and short phrases such as names [and] titles ... mere variations of typographic ornamentation [or] lettering" are not copyrightable.). Nor does West's overall choice concerning which procedural facts to include at the start of the case report demonstrate the requisite originality or creativity: The names of the parties, the deciding court, and the dates of argument and decision are elementary items, and their inclusion is a function of their importance, not West's judgment. Cf. Kregos, 937 F.2d at 702 (noting that "there can be no claim of a protectable interest in the categories of information concerning each day's [baseball] game," including the teams, starting pitchers, the game time, and the betting odds).

2. Attorney Information

[12] The second claimed creative element is West's selection and arrangement of attorney*684information. The Supreme Court slip opinions and some slip opinions of the courts of appeals omit some or all of the information about counsel that West compiles from the docket sheets and from other sources. For Supreme Court opinions, West lists the arguing counsel and the lawyer's city and state of practice; for court of appeals decisions, West lists the names of briefing attorneys as well as arguing attorneys, and specifies each lawyer's city and state of practice and law-firm or agency affiliation.

Here again we agree with the district court that West's decisions lack a modicum of creativity. Like the name, town and telephone number included in Feist's telephone directory, the information West includes--attorney names, firms and cities of practice--is entirely "typical" and "garden-variety." See, e.g., Skinder-Strauss Assocs. v. Massachusetts Continuing Legal Educ., Inc., 914 F.Supp. 665, 676 (D.Mass.1995) (noting that "[i]n compiling a Massachusetts directory of lawyers and judges, ... [t]he 'selection' of other directory data, including the attorney name, address, telephone and fax numbers, year of bar admission, and so forth are ... unoriginal and determined by forces external to the compiler"); cf. Key Publications, Inc. v. Chinatown Today Publ'g Enters., Inc., 945 F.2d 509, 514 (2d Cir.1991) (emphasizing the creativity inherent in designating phone-book classifications of particular interest to Chinese-Americans). In fact, most courts (this one included) provide the very same information in their slip opinions.

West's decision to provide more information about counsel in the court of appeals case reports, and less in the Supreme Court case reports does not strike a creative spark because the options available to a publisher are simply too limited. West's claim illustrates the danger of setting too low a threshold for creativity or protecting selection when there are two or three realistic options: West lists only the arguing attorneys and city of practice, while United States Law Week lists the arguing and briefing attorneys, their firm affiliations and city and state of practice. If both of these arrangements were protected, publishers of judicial opinions would effectively be prevented from providing any useful arrangement of attorney information for Supreme Court decisions that is not substantially similar to a copyrighted arrangement.

3. Subsequent History

[13] West's case reports reflect certain subsequent procedural developments, such as orders amending an opinion or denying rehearing. The district court found that West's alteration of opinions to reflect these subsequent case developments does not reflect an exercise of originality or creativity, in part because West's realistic options are limited. We cannot say that this was clear error.

In most appeals, the only subsequent development is a denial of rehearing. West's manuscript manager Bergsgaard described two possible ways to reflect this action: (i) a file line, inserted at the beginning of the case just after the date of the original decision, which simply states "rehearing denied" and the date of the denial, or (ii) a table containing the same information. West has chosen to reflect denial of rehearing via a file line. Neither this choice, nor the actual language used to reflect the denials ("rehearing denied" followed by the date), is creative or requires judgment.

As the trial testimony reflects, subsequent orders sometimes reflect more extensive changes or additions to opinions, such as amendments to the original opinion (ranging from minimal to extensive), or subsequent opinions upon denial of rehearing or in dissent from denial of rehearing or rehearing in banc. The actual text of any amendments to opinions or new opinions issued with the denial of rehearing will always be the court's. But West points to the following available options for reflecting these changes, and claims that its choice from among these options is creative: (i) printing the order in full at the end of the opinion; (ii) altering the text of the opinion to reflect the amendments; (iii) publishing the order separately from the original opinion in a different volume and cross-referencing to the original opinion; or (iv) reprinting the original opinion in full with the changes reflected in the text.

*685 Almost never will these decisions present more than one or two realistic or useful options, and almost always the choice among them will be dictated by the timing of the court action. For example, an order amending an opinion will either (i) reflect the exact locations in the opinion where changes are to be made, in which case the obvious preference is to alter the text of the opinion, or (ii) include some general language modifying the opinion, in which case the obvious preference is to print the order at the end of the text of the opinion. If the opinion has not yet gone to print in an advance sheet or a bound volume, West will actually make these changes in the original opinion. If the opinion has already been printed in the bound volume, then West (once again) has only binary options: (i) print only the order and cross-reference to the original opinion, or (ii) reprint the opinion in full, incorporating the changes and/or publishing the order at the end of the opinion. As set forth in the margin, West's exemplar confirms how little judgment is exercised even in a case with a complicated subsequent procedural history. [FN7] West also adds a file line explaining the action, but the line merely sets forth the court's action. Given the few practical options available to West, and the fact that the choice among these narrow options will be dictated by the timing and nature of the court's action, we do not think the district court clearly erred in determining that this element of West's case reports does not demonstrate sufficient creativity to be protectable.

FN7. West focuses on its case report for Roulette v. City of Seattle, decided in March 1996 and published at 78 F.3d 1425 (9th Cir.1996). In September 1996, there issued an order amending the opinion upon denial of rehearing and suggestion for rehearing in banc, and two opinions dissenting from the denial of rehearing in banc. The order amending the opinion made substantial substantive changes to the opinion, and so West decided to republish the full opinion with the changes reflected in the text at 97 F.3d 300 (9th Cir.1996). Moreover, it printed the full order (with a note indicating that the amendments to the opinion were included in the text) with the dissenting opinions at the end of the opinion. Finally, it added a file line reflecting those developments. None of these decisions demonstrates the exercise of any creativity; in fact, with the exception of the file line, all were dictated by the changes made to the opinion by the court. The Ninth Circuit did the same thing, i.e., republished the original opinion incorporating the amendments and printed the order and dissents in full following the text.

4. Parallel or Alternate Citations

[14] As the district court recognized, the element of West's case reports that raises the closest question as to creativity is West's emending of the citations, as follows:

(a) West inserts parallel citations when the judicial opinion does not, e.g., (i) for citations to Supreme Court opinions, it inserts parallel citations to United States Reports, Supreme Court Reporter, and Lawyer's Edition, (ii) for citations to a state court, West inserts parallel citations to the official reporter and West's regional reporter, and (iii) for citations to looseleaf, specialized, or electronic reporters, West inserts parallel citations to a West National Reporter System ("NRS") reporter or Westlaw (West's on-line database);

(b) West substitutes some court citations, e.g., if the court cites to a slip opinion that has been published in an NRS reporter, West will substitute a citation to the NRS reporter; and

(c) West adds citations when the opinion refers to a case by name but does not insert a citation.

The district court concluded that "[i]n most instances the determination of which parallel citations to include ... reflect[s] no level of originality," and that the "selections made tend to conform to the standard of the legal profession and appear consistent with those recommended in A Uniform System of Citation." Matthew Bender & Co., 1997 WL 266972 at *4.

We cannot find that the district court's conclusion was unreasonable. West claims that it exercises careful judgment as to which sources are most useful to legal practitioners. However, almost every one of West's decisions relating to citation alterations is inevitable, typical, dictated by legal convention, or at best binary. See 1 Patry, supra, at 196-97 ("Even where theoretically there is a large number of items to choose from, functional, commercial, or legal constraints may limit, or*686 even bar, protectibility."). And each case report exhibits only one or two decisions on how to alter citations.

West has issued a series of memoranda to its editors that contain guidelines for citation alterations (a complete list of the citational instructions is set out in the margin [FN8]). Most of West's citation guidelines need no discussion because they involve obvious, garden-variety decisions to cite to West NRS case reporters and to Westlaw whenever the court has cited to sources that are not easily accessible, such as looseleaf or daily or weekly reporter services or slip opinions; there are few options to begin with, and West's case reporters and Westlaw have the widest availability and have essentially become the standard citation to case law. See, e.g., The Bluebook, supra, at 165-225 (recommending citation to West federal and regional reporters for all federal and state courts, with the exception of the Supreme Court, for which Supreme Court Reporter is listed as a secondary cite); id. rule 10.3.1 (recommending citation to West regional reporters, and if not published therein, to a "widely used computer database" or to a "service," in that order of preference). No evaluative judgment is involved in a decision to cite to those two sources (especially given West's self-interest in including citations to its own products).

FN8. West has issued the following guidelines for citation alterations:

(1) follow certain prescribed formats for abbreviation of Rules of Civil Procedure, state rules, and statutes.

(2) add a citation to Westlaw or to an NRS case reporter for citations to certain looseleaf services when the case cannot be directly retrieved through Westlaw using the looseleaf service citation.

(3) substitute an NRS case reporter cite for 15 publications, almost all of which are daily or weekly reports or journals, including: Arizona Advance Reports, California Daily Appellate Report, 9th Circuit Daily Journal, Florida Law Weekly, Oklahoma Bar Journal, Texas Supreme Court Journal, and United States Law Week.

(4) add an NRS case reporter or Westlaw cite for 15 publications, some of which are topical publications and others of which are competitor publications, including: American Law Reports (A.L.R.), Board of Tax Appeals, Federal Sentencing Reporter, Idaho Bankruptcy Court Reports, Pennsylvania Fiduciary, and Virgin Islands Reports.

(5) for citations to cases appearing in tables in West case reporters, include a Westlaw cite if Westlaw contains the full-text of the summary order.

(6) if the court's citation indicates that a petition for certiorari has been filed and the Supreme Court has acted on the petition: (a) if the petition has been denied and the date of the denial was prior to the date the opinion was decided, add the citation for the denial of certiorari.

(b) if the petition was denied after the opinion was decided, do not add a citation for the denial of certiorari.

(c) if the petition was granted, check with the court to see if the case citation should be retained.

(7) if a court includes a short form citation for a case which has not yet been cited in full in the opinion, insert the full citation.

(8) if a court cites to a slip opinion, add the NRS case reporter citation. If this citation is unavailable prior to publication, add a Westlaw citation.

(9) add extension pages for citations if the court's NRS citation includes an extension page.

(10) change internal page references in the slip opinion to dashes so that a reporter page number can be inserted by West editors.

(11) add a Westlaw or NRS case reporter citation for public utility citations.

(12) do not remove citations in opinions to public domain citation systems in those jurisdictions that have adopted such citation systems, including the Sixth Circuit and South Dakota. (13) add a Westlaw citation when the court includes a LEXIS citation, and in certain situations, remove the LEXIS citation.

(14) add a citation for a case referenced in the text of the opinion without citation unless that case appears on a list of 300 popular case names.

(15) add parallel citations for Supreme Court decisions to United States Reports, Supreme Court Reporter, and Lawyer's Edition.

(16) add parallel citations for state court decisions to an NRS regional case reporter and the state's official reporter.

[15] As for the other guidelines, the following represent the citation decisions that receive the most emphasis by West, and that represent most, if not all, of the examples of citation alterations included in cases that West offered into evidence at trial:

. West's decision to insert a citation to the denial of certiorari only when the denial pre-dated the opinion is necessary to avoid anachronism, and is in any event a choice *687 among two or three options at most. [FN9] See, e.g., BellSouth Adver. & Publ'g Corp. v. Donnelley Info. Publ'g, Inc., 999 F.2d 1436, 1441 (11th Cir.1993) (in banc ) (holding that determination of closing date after which no changes were included in the yellow pages at issue did not demonstrate creativity in selection because "any collection of facts 'fixed in any tangible medium of expression' will by necessity have a closing date" (footnote omitted)).

FN9. Even West notes in its brief, "Every publisher has at least three options [on how to update citations in slip opinions]--to leave citations as they appear in the opinion, to update them as of the date of case-report publication, or to update them only as of the date of the original order."

. As proof of its creativity in electing to parallel-cite to United States Reports, Supreme Court Reporter, and Lawyer's Edition, West lists eight other reporters of Supreme Court opinions that do not parallel-cite to these sources, and to which West does not parallel-cite. But all of these reporters are daily or weekly updates intended to provide quick copies of the slip opinions, not to serve as research tools or permanent records, and they are not recognized as standard sources for citation in the legal profession. West's decision to omit parallel citation to those reporters requires no evaluative judgment, and the decision by the publishers of those reporters and services to omit parallel citation to the same reporters cited by West reflects the more limited purpose of those reporters rather than the creativity of West's own choice. [FN10] In the end, West decided to include every permanent record of Supreme Court opinions--i.e., it makes no "selection" at all.

FN10. West maintains a list of 300 cases deemed by West to be so well known that West will leave intact one-party references to these cases without expanding the case citation. This practice involves an undeniably creative, but minor, insight into which cases are within an ordinary lawyer's frame of reference, and the expression of that selection would be protectable. Nevertheless, West offered no evidence as to how often these cases are cited without a full citation in the judicial opinions that HyperLaw seeks to copy and we will not find infringement for what seems to be de minimis copying of protected material. Cf. Warner Bros. Inc. v. American Broad. Cos., 720 F.2d 231, 242 (2d Cir.1983) (noting that de minimis rule permits "the literal copying of a small and usually insignificant portion of the plaintiff's work").

. Nor do we see any creativity in West's decision to cite to official state reporters as well as regional NRS reporters for state court decisions. These are almost always the only two realistic choices (again, this hardly amounts to "selection"), and a decision to cite to an official reporter can hardly be said to be anything other than typical. [FN11]

FN11. West emphasizes that The Bluebook 's rule dispenses with citation to official reporters, but it ignores another Bluebook rule that practitioners cite to official state reporters for cases decided by the state in which the practitioner is filing papers. See The Bluebook, supra, rule P.3. Furthermore, another citation guide recommends citing to both the official reporter and the NRS reporter on all occasions. See The University of Chicago Manual of Legal Citation 15 (1989) ("When citing to a state case, indicate the volume and first page of the case for both the official and commercial reporters.").

One useful way to appreciate how little creativity inheres in West's citation decisions is to consider what West's competitors would have to do to avoid an infringement claim were we to find West's citation decisions copyrightable. Competitors such as HyperLaw seeking to create a useful case report would need to engage in their own original selection of parallel and alternate citations. But while some generally useful information which does not appear in West's case reports could be included (such as citations to LEXIS instead of Westlaw), most of the information a researcher would find useful (such as citations to West NRS reporters) already have been added to West's case reports; West gives few examples of other useful supplementary information. A competitor that included these alterations, notwithstanding their inclusion in West's case reports, could have no confidence that an infringement claim could be avoided, especially given our warning in Key Publications that infringement cannot be avoided by pointing to isolated differences from a copyrighted work. See Key Publications, Inc. v. Chinatown Today Publ'g Enters., Inc., 945 F.2d 509, 514 (2d *688 Cir.1991) (holding that a compilation copyright is not so "thin" as to be "anorexic," and does not allow "subsequent compilers to avoid infringement suits simply by adding a single fact to a verbatim copy of the copyrighted compilation, or omitting in the copy a single fact contained in the copyrighted compilation"). One way of saying that West's "choices" are obvious and typical is that a competitor would have difficulty creating a useful case report without using many of the same citations. Affording these decisions copyright protection could give West an effective monopoly over the commercial publication of case reports (at least those containing supplemental citations).

Nor do we think the district court erred in concluding that the combination of these citation decisions is unprotectable. West's particular decisions about which parallel citations to insert are driven in each instance by the court's decision to cite to a certain case, and thus each editorial choice is independent of the others. The cumulative effect of these citation decisions is a piling up of things that are essentially obvious or trivial (albeit helpful), each in its discrete way in its discrete spot. The whole does not disclose or express an overall creative insight or purpose, such as a set of statistics that together allow the ranking of a group of ball players, or a designation or highlighting of phone numbers that together allow the user of a phone book to enjoy an unusual or particular convenience. The combined effect of West's non-creative citation decisions cannot be said to be creative, on such a theory or any other theory that West advances. We conclude that the district court did not clearly err in deciding that West's citation alterations display insufficient creativity to be protectable.

* * *

Finally, West's overall decision to add attorney information, subsequent history, and additional citation information exhibits little, if any, creative insight; most courts already provide attorney information, and opinion accuracy mandates inclusion of subsequent history.

West's editorial work entails considerable scholarly labor and care, and is of distinct usefulness to legal practitioners. Unfortunately for West, however, creativity in the task of creating a useful case report can only proceed in a narrow groove. Doubtless, that is because for West or any other editor of judicial opinions for legal research, faithfulness to the public-domain original is the dominant editorial value, so that the creative is the enemy of the true. [FN12]

FN12. HyperLaw argues that we should apply the merger doctrine to bar the copyrightability of West's alterations to judicial opinions. The fundamental copyright principle that only the expression of an idea and not the idea itself is protectable has produced a corollary maxim that even expression is not protected in those instances where there is only one or so few ways of expressing an idea that protection of the expression would effectively accord protection to the idea itself.

Kregos v. Associated Press, 937 F.2d 700, 705 (2d Cir.1991) (citation omitted). HyperLaw claims that the idea of a case report has effectively merged with West's expression of that concept.

We decline to invoke the merger doctrine in this case. First, "[o]ur Circuit has considered this so-called 'merger' doctrine in determining whether actionable infringement has occurred, rather than whether a copyright is valid." Id.; see also CCC Info. Servs., Inc. v. Maclean Hunter Market Reports, Inc., 44 F.3d 61, 72 n. 26 (2d Cir.1994) ( "In this circuit, consideration of the merger doctrine takes place in light of the alleged copying to determine if infringement has occurred, rather than in analyzing the copyrightability of the original work."). In addition, under this approach, "if a defendant has actually copied the plaintiff's work, it is unlikely to be allowed to rely on merger to avoid liability," Kregos, 937 F.2d at 716 (Sweet, J., concurring in part and dissenting in part). HyperLaw seeks a declaratory judgment holding West's case reports non-copyrightable and allowing it actually to copy West's case reports. It therefore cannot avail itself of the merger doctrine.

Second, West's work does not constitute a "building block[ ] of understanding," which we have indicated is the type of expression to which we will consider applying the merger doctrine. See CCC Info. Servs., 44 F.3d at 71.

Our decision in this case does not mean that an editor seeking to create the most accurate edition of another work never exercises creativity. [FN13] As West argues, our decisions *689 establish a low threshold of creativity, even in works involving selection from among facts. But those cases involved the exercise of judgments more evaluative and creative than West exercises in the four elements of the case reports that HyperLaw intends to copy. For instance, in Kregos thousands of different permutations of pitching statistics were available for inclusion in the publisher's pitching chart. See Kregos, 937 F.2d at 704; see also Eckes v. Card Prices Update, 736 F.2d 859, 863 (2d Cir.1984) (baseball card guide which selected 5,000 "premium" baseball cards from among 18,000 eligible baseball cards was copyrightable). In Key Publications, we found sufficient creativity because the author of the yellow pages "excluded from the directory those businesses she did not think would remain open for very long." 945 F.2d at 513. In CCC Information Services, we found sufficient creativity in the selection of optional car features and number of years' models to be included in a used-car price compilation. 44 F.3d at 67. And in Lipton v. Nature Co., 71 F.3d 464 (2d Cir.1995), the author "selected [the terms included in the work] from numerous variations of hundreds of available terms." Id. at 470. In each of these cases, the compiler selected from among numerous choices, exercising subjective judgments relating to taste and value that were not obvious and that were not dictated by industry convention. See Mid America Title Co. v. Kirk, 59 F.3d 719, 723 (7th Cir.1995) (distinguishing cases involving exercise of subjective judgment). [FN14]

FN13. It is true that some types of editing require little creativity. See, e.g., Grove Press, Inc. v. Collectors Publication, Inc., 264 F.Supp. 603, 605 (C.D.Cal.1967) ("Plaintiff made approximately forty thousand changes from the Verlag copy in producing its edition. These changes consisted almost entirely of elimination and addition of punctuation, changes of spelling of certain words, elimination and addition of quotation marks, and correction of typographical errors. These changes required no skill beyond that of a [1967] high school English student and displayed no originality. These changes are found to be trivial."). In addition, convention and external forces may, as here, limit the practical choices available so as to eliminate any creativity. On the other hand, preparing an edition from multiple prior editions, or creating an accurate version of the missing parts of an ancient document by using conjecture to determine the probable content of the document may take a high amount of creativity. See, e.g., Abraham Rabinovich, Scholar: Reconstruction of Dead Sea Scroll Pirated, Wash. Times: Nat'l Wkly. Edition, Apr. 12, 1998, at 26 (discussing scholar's copyright infringement claim in Israeli Supreme Court relating to his reconstruction of the missing parts of a "Dead Sea Scroll" through the use of "educated guesswork" based on knowledge of the sect that authored work).

FN14. HyperLaw argues also that West has failed to comply with the requirement of 17 U.S.C. § 403 that it identify those parts of the government work in which it does not claim a copyright. Because we find that the elements of West's case reports that HyperLaw seeks to copy are not protectable, we need not reach this issue.

Similarly, in Weissmann v. Freeman, 868 F.2d 1313 (2d Cir.1989), a textual derivative-work case, we found sufficient creativity where the author of the derivative work had drawn on earlier joint works with another professor to create a document that contained the following new elements from the previous version of the document:

(1) a selection and arrangement of photo illustrations and associated captions; (2) references to recent reports in the pertinent literature; (3) selection, condensation, and description of additional source material; (4) several new textual additions; (5) substantial rearrangement of the manner and order of presentation of material contained in the parties' prior joint works; and (6) the addition of a section on "congenital disorders," a revised treatment of "chronic cholecystitis," and the incorporation of Dr. Freeman's "false positive" studies.

Id. at 1322. As this passage demonstrates, the alterations inserted in the derivative work were by no means obvious or driven by professional convention, and resulted in substantial changes to the substance and flow of the piece. No such substantial variations characterize West's case reports.

CONCLUSION

The district court did not clearly err in concluding that the elements of West's case reports that HyperLaw seeks to copy are not copyrightable. The judgment of the district court is affirmed.

SWEET, District Judge:

The key issue in this appeal is whether West's Supreme Court Reporter and Federal Reporter case reports in the context of its *690 overall reporter citation system meet the constitutional and statutory requirement of creative originality. Because the majority imposes a standard that demands significantly more than the "modicum" of originality required by Feist Publications, Inc., v. Rural Telephone Service Company, Inc., 499 U.S. 340, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991), and far more than the "non-trivial" variation required by this Court for derivative-work and compilation copyright protection, I respectfully dissent. [FN1]

FN1. Although not dispositive since I believe that the district court's determination is clearly erroneous, review should be de novo. Whether West's annotations are copyrightable requires application of the legal standard imposed by the constitution and copyright statute to the undisputed facts. To the extent prior Second Circuit opinions have reviewed issues of copyrightability for clear error, they appear inconsistent with the Supreme Court's de novo review of a similar issue in Feist (impliedly, although not expressly, reversing district court after de novo review), inconsistent with the de novo standard applied by this Court in other mixed questions in copyright law, see e.g. American Geophysical Union v. Texaco Inc., 60 F.3d 913, 918 (2d Cir.1994) (fair use is mixed question subject to de novo review); Carter v. Helmsley-Spear, Inc., 71 F.3d 77, 85 (2d Cir.1995) (work for hire status legal conclusion reviewed de novo, although factual finding of each relevant factor reviewed for clear error); Folio Impressions, Inc. v. Byer California, 937 F.2d 759, 766 (2d Cir.1991) (substantial similarity reviewed de novo since credibility not at issue), or distinguishable, see Financial Information, Inc. v. Moody's Investors Service, Inc., 808 F.2d 204, (2d Cir.1986) (noting that district court relied "on its evaluation of the credibility of witnesses--which we are ill-disposed to disturb on appeal" whereas here facts are not in dispute).

The Copyright Act protects both derivative works and compilations, and I agree with the majority that West's case reports have elements of both. The standard for copyrightability set forth in Feist, as the majority notes, is applicable whether West's editorial work is analyzed in terms of derivative work or compilation. See e.g., Atari Games Corp. v. Oman, 979 F.2d 242, 244-45 (D.C.Cir.1992) (Feist applicable to [audio-visual] compilation); 2 W. Patry, Copyright Law and Practice 1225 (1994) (Feist applicable to derivative works). Contrary to the majority's holding, however, I find that West's selection and arrangement of factual annotations to public domain judicial opinions, considered as a whole, is copyrightable.

Originality alone--whether the "author make[s] the selection or arrangement independently (i.e. without copying that selection or arrangement from another work)"--is not sufficient. Feist, 499 U.S. at 358, 111 S.Ct. 1282. The work must also "display some minimal level of creativity." Id. Creativity for copyright purposes is not a philosophical question: the "creative spark" need only pass "the narrowest and most obvious limits." See Bleistein v. Donaldson Lithographing Company, 188 U.S. 239, 251, 23 S.Ct. 298, 47 L.Ed. 460. The "modicum of creativity" requires simply that the author prove "the existence of ... intellectual production, of thought, and conception." Feist, 499 U.S. at 362, 111 S.Ct. 1282 (quoting Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. 53, 59-60, 4 S.Ct. 279, 28 L.Ed. 349 (1884)); see also Key Publications Inc. v. Chinatown Today Publishing Enterprises, Inc., 945 F.2d 509, 514 (2d Cir.1991). ("[D]e minimis thought withstands originality requirement").

Thus, while the majority is correct that it is "not a goal of copyright law" to encourage the creation of compilations which lack "sufficient creativity," it is well-established that the required level of creativity is "extremely low." Feist, 499 U.S. at 345, 111 S.Ct. 1282. [FN2]

FN2. Indeed, "[m]ost applications of Feist have recognized the circumscribed sphere to which its holding applies, ruling that it invalidates the copyright only in the most banal of works, such as the white pages of a phone book." 1. M. Nimmer, Copyright § 3.04[B][2], p.3-33 (footnotes omitted).

In Feist, Rural's alphabetical arrangement by surname, and selection of name, town and telephone number to include in a telephone book, was "practically inevitable." Id. at 363, 111 S.Ct. 1282. Although the facts need not be presented in an "innovative or surprising way," Rural's choice was "so mechanical or routine as to require no creativity whatsoever." Feist, 499 U.S. at 362, 111 S.Ct. 1282. Indeed, the copyright claimant in Feist had no real choice how to arrange a white pages directory, particularly given that state law prescribed the selection of data, and that only a few basic decisions were involved. Id. *691 Also significant was that only Rural possessed the underlying data. Id. at 363, 111 S.Ct. 1282.

Here, West has made choices to make its reporters and its citation system valuable. West makes dozens of multi-part, variable judgments, and there is no evidence that any of West's choices are commonplace, "practically inevitable," dictated by law, or that they follow any external guidelines. On the contrary, the record demonstrates that West makes a number of substantive, editorial choices--without court direction or approval--in determining the content and expression of its case reports. West's judgments involve assessments of "readability," clarity, completeness, availability (present and future) of sources, and other subjective considerations related to making the reports more useful.

Specifically, West asserts that originality inheres in the following aspects of its editorial process: (1) its decisions about when to add parallel citations and which parallel citations to add; (2) its substitution of "alternative citations" when its editors deem that the original citation should be improved upon in terms of usefulness, currency, or accuracy; (3) its addition of its own citations when none are provided; (4) its internal revision and correction of citations; (5) its expansion and completion of citation page references; (6) its creation, selection, and arrangement of additional text to reflect subsequent case developments; (7) its selection and arrangement of data for attorney summaries, and (8) its revision and reorganization of captions, court lines, date lines, and other prefatory material. Because these choices express thought and are not inevitable, West's annotations do not fall in the "narrow category" of works which are not copyrightable.

The fact that federal judges publish written opinions differently than West is sufficient reason to conclude that West's version requires some "thought" and is sufficiently "creative" to satisfy the modicum necessary for copyrightability. If a federal judge chooses to cite only to the United States Reporter, include minimal attorney information in his or her written opinion, or not provide a cite for a referenced case, then an alternative choice to provide parallel citations, expand attorney information, and cite the case cannot be deemed so "typical," "garden-variety," "obvious" or "inevitable" to prohibit copyrightability. Cf. Feist, 499 U.S. at 362-63, 111 S.Ct. 1282.

The majority dissects each element of West's editorial process and then extrapolates that "the cumulative effect of these citation decisions is a piling up of things that are essentially obvious or trivial (albeit helpful), each in its discrete way in its discrete spot."

West's originality, however, cannot be determined by the sum total of whatever (creativity) remains after each individual component is atomized. Indeed, this Court recently warned against the dangers of basing copyrightability analysis on an approach which isolates each element or ignores the "protectible expression within an unprotectible element." Softel, Inc. v. Dragon Medical and Scientific Communications, Inc., 118 F.3d 955, 964 (2d Cir.1997). See also 3 M. Nimmer, Copyright § 13.03[F][5], at 13-145 n.345.1 (explaining that the fact that Hamlet's soliloquy can be reduced into unprotectible words does not mean that the soliloquy as a whole lacks originality for copyright purposes).

West's selection of particular annotations for each case must be considered a whole, not individually. See Key Publications, 945 F.2d at 514 (issue is "whether the arrangement ... viewed in the aggregate, is original"). In defining a derivative work, the issue is whether "modifications" "represent an original work of authorship" must be considered "as a whole." 17 U.S.C. § 101 (emphasis added) (definition of derivative work). The same legislative command is repeated in the definition of compilations, which provides that a compilation is "a work formed by the collection and assembling of preexisting materials ... that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship." 17 U.S.C. § 101 (emphasis added). The cumulative and collective originality manifest in West's case reports satisfies the "de minimis " level needed for the work as a whole to be copyrightable. Indeed, *692 it must be assumed that the originality and the consequent utility of the West citation system is precisely the reason that Hyperlaw seeks to use West as its verbatim source.

In my view the decision of the majority is not consistent with the post- Feist case Key Publications, 945 F.2d at 509. In Key Publications, this Court held that classified directories of Chinese-American businesses was copyrightable because, among other things, plaintiff excluded enterprises she believed would not remain in business. This selection "indicates thought and creativity in the selection of businesses included." Id. at 513. If there is a modicum of originality in deciding which businesses are likely to stay open for awhile, the test is surely also met by deciding in a system designed to assist legal research for example, which sources are sufficiently useful, available, or permanent to stand alone, and which require the addition of an electronic parallel citation.

Contrary to the majority's view, the alternative factual annotations selected by West are not comparable to the cases where courts have denied copyright protection based on lack of originality. In Victor Lalli Enterprises, Inc. v. Big Red Apple, Inc., 936 F.2d 671 (2d Cir.1991), it was undisputed that the publisher's selection and arrangement of fact categories was exactly the same as that of all racing-chart publishers. Id. at 672. In Financial Information, Inc. v. Moody's Investors Service, Inc., 808 F.2d 204 (2d Cir.1986), cert. denied, 484 U.S. 820, 108 S.Ct. 79, 98 L.Ed.2d 42, it was beyond dispute that the five basic facts listed on the Daily Bond Cards were an "inevitable" choice devoid of originality. In this case, by contrast, all of West's basic choices involve subjective judgment.

In Skinder-Strauss Associates v. Massachusetts Continuing Legal Education, Inc., 914 F.Supp. 665 (D.Mass.1995), the court held that the legal directory is copyrightable "as a whole," and therefore the question was substantial similarity, not copyrightability. Id. at 677. Although the Skinder- Strauss court held that individual elements, such as a calendar of Christian and Jewish holidays, were not copyrightable, here West does not seek copyrightability of individual facts, but rather seeks to prevent verbatim copying of the case report as a whole.

The copyright granted West is thin, but it is sufficient to protect against the verbatim digital copying proposed by Hyperlaw. This result protects the advancement of science and the arts, while not permitting Hyperlaw to undermine any incentive for West to annotate judicial opinions selectively. If West's competitors were authorized to scan West's editorial enhancements systematically and, in effect, to copy its citation system, the economic incentive to engage in this kind of original and productive enterprise would largely evaporate.

There is no danger here that granting West's copyright protection to its annotations provides them a monopoly over the "idea" of publishing judicial opinions. When the number of ways data can be organized is so limited that its expression merges with the idea, copyright may be denied. However, here "there are a sufficient number of ways of expressing the idea ... to preclude a ruling that the idea has merged into its expression." Kregos v. Associated Press, 937 F.2d 700 (2d Cir.1991). In Kregos, this Court held that "the past performances of baseball pitchers can be measured by a variety of statistics," and is copyrightable. Here, too, opinions can be, and are, written with a variety of citation combinations and other facts either included or not. This case is not like Matthew Bender & Co. v. Kluwer Law Book Publishers, Inc., 672 F.Supp. 107 (S.D.N.Y.1987), where the court concluded that the categories in the plaintiff's chart (amount, case, plaintiff event, injury, and relevant data) are "the only sensible ones which could have been used to compile the data." Id. at 112.

To the extent that the West selection of factual annotation may seem obvious to anyone familiar with legal sources, it may be because of West's success in the market. [FN3] *693 There is no support for the proposition that West's success in achieving an "industry standard" citation arrangement obligates them to donate the material to the public domain. Cf. BellSouth, 999 F.2d at 1444 (industry standard copied from industry association).

FN3. The contention that all of West's enhancements are trivial is somewhat ironic given that what motivates this litigation, it is assumed, is the desire to make money by copying West's valuable editorial work.

For the reasons stated, I conclude the summary judgment granted in favor of Hyperlaw should be reversed.

 158 F.3d 693

1998 Copr.L.Dec. P 27,827, 48 U.S.P.Q.2d 1545

MATTHEW BENDER & COMPANY, INC., Plaintiff-Appellee,

Hyperlaw, Inc., Intervenor-Plaintiff-Appellee,

v.

WEST PUBLISHING CO.; West Publishing Corporation, Defendants-Appellants. 

(West Publishing Co, II)

Docket No. 97-7430.

United States Court of Appeals,

Second Circuit.

Argued March 16, 1998.

Decided Nov. 3, 1998.

Before: CARDAMONE and JACOBS, Circuit Judges, and SWEET, [FN*] District Judge.

Judge SWEET dissents in a separate opinion.

JACOBS, Circuit Judge:

Defendants-appellants West Publishing Co. and West Publishing Corp. (collectively "West") create and publish printed compilations of federal and state judicial opinions. Plaintiff-appellee Matthew Bender & Company, Inc. and intervenor-plaintiff-appellee HyperLaw, Inc. (collectively "plaintiffs") manufacture and market compilations of judicial opinions stored on compact disc-read only memory ("CD-ROM") discs, in which opinions they embed (or intend to embed) citations that show the page location of the particular text in West's printed version of the opinions (so-called "star pagination"). [FN1] Bender and HyperLaw seek judgment declaring that star pagination will not infringe West's copyrights in its compilations of judicial opinions. West now appeals from a judgment of the United States District Court for the Southern District of New York (Martin, J.), granting summary judgment of noninfringement to Bender and partial summary judgment of noninfringement to HyperLaw. [FN2]

FN1. This cross-reference method is called "star pagination" because an asterisk and citation or page number are inserted in the text of the judicial opinion to indicate when a page break occurs in a different version of the case.

FN2. The district court granted summary judgment to HyperLaw on the star pagination issue. However, HyperLaw had sought an additional declaration that its duplication of West's version of the captions and text of judicial opinions does not infringe West's copyright. The district court denied summary judgment on that claim, and ruled for HyperLaw following a bench trial. West appeals from that decision as well and we uphold that ruling in a separate opinion issued today. See Matthew Bender & Co. v. West Publ'g Co., 158 F.3d 674 (2d Cir.1998).

West's primary contention on appeal is that star pagination to West's case reporters allows a user of plaintiffs' CD-ROM discs (by inputting a series of commands) to "perceive" West's copyright-protected arrangement of cases, and that plaintiffs' products (when star pagination is added) are unlawful copies of *696 West's arrangement. We reject West's argument for two reasons:

A. Even if plaintiffs' CD-ROM discs (when equipped with star pagination) amounted to unlawful copies of West's arrangement of cases under the Copyright Act, (i) West has conceded that specification of the initial page of a West case reporter in plaintiffs' products ("parallel citation") is permissible under the fair use doctrine, (ii) West's arrangement may be perceived through parallel citation and thus the plaintiffs may lawfully create a copy of West's arrangement of cases, (iii) the incremental benefit of star pagination is that it allows the reader to perceive West's page breaks within each opinion, which are not protected by its copyright, and (iv) therefore star pagination does not create a "copy" of any protected elements of West's compilations or infringe West's copyrights.

B. In any event, under a proper reading of the Copyright Act, the insertion of star pagination does not amount to infringement of West's arrangement of cases...........

DISCUSSION

[1][2] West's case reporters are compilations of judicial opinions. The Copyright Act defines a "compilation" as "a work formed by the collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship." 17 U.S.C. § 101 (1994). Compilations are copyrightable, but the copyright "extends only to the material contributed by the author of such work, as distinguished from the preexisting material employed in the work." 17 U.S.C. § 103 (1994). [FN8] Works of the federal government are not subject to copyright protection, 17 U.S.C. § 105 (1994), although they may be included in a compilation.

FN8. Section 103 of the Copyright Act provides:

(a) The subject matter of copyright as specified by section 102 includes compilations and derivative works, but protection for a work employing preexisting material in which copyright subsists does not extend to any part of the work in which such material has been used unlawfully.

(b) The copyright in a compilation or derivative work extends only to the material contributed by the author of such work, as distinguished from the preexisting material employed in the work, and does not imply any exclusive right in the preexisting material.

17 U.S.C. § 103.

Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991), is the seminal Supreme Court decision on copyrights in compilations. In Feist, the publisher of a telephone book claimed that a competitor had infringed its compilation copyright by copying some of its white pages listings. The Court clarified the scope of a copyright in compilations: "A factual compilation is eligible for copyright if it features an original selection or arrangement of facts, but the *699copyright is limited to the particular selection or arrangement. In no event may copyright extend to the facts themselves." Id. at 350-51, 111 S.Ct. at 1290. Because of this limitation on protectability, "the copyright in a factual compilation is thin. Notwithstanding a valid copyright, a subsequent compiler remains free to use the facts contained in another's publication to aid in preparing a competing work, so long as the competing work does not feature the same selection and arrangement." Id. at 349, 111 S.Ct. at 1289. The Court expressly rejected the "sweat of the brow" doctrine, which had justified the extension of copyright protection to the facts and other non- original elements of compilations on the basis of the labor invested in obtaining and organizing the information. Id. 359-60, 111 S.Ct. at 1295.

[3] Under Feist, two elements must be proven to establish infringement: "(1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original." Id. at 361, 111 S.Ct. at 1296. Bender and HyperLaw concede that West has proven the first element of infringement, i.e., that West owns a valid copyright in each of its case reporters.

[4][5][6] However, as is clear from the second Feist element, copyright protection in compilations "may extend only to those components of a work that are original to the author." Id. at 348, 111 S.Ct. at 1289. The "originality" requirement encompasses requirements both "that the work was independently created ..., and that it possesses at least some minimal degree of creativity." Id. at 345, 111 S.Ct. at 1287 (emphasis added); see also Key Publications, Inc. v. Chinatown Today Publ'g Enters., Inc., 945 F.2d 509, 512-13 (2d Cir.1991) ("Simply stated, original means not copied, and exhibiting a minimal amount of creativity."). At issue here are references to West's volume and page numbers distributed through the text of plaintiffs' versions of judicial opinions. West concedes that the pagination of its volumes--i.e., the insertion of page breaks and the assignment of page numbers--is determined by an automatic computer program, and West does not seriously claim that there is anything original or creative in that process. As Judge Martin noted, "where and on what particular pages the text of a court opinion appears does not embody any original creation of the compiler." Because the internal pagination of West's case reporters does not entail even a modicum of creativity, the volume and page numbers are not original components of West's compilations and are not themselves protected by West's compilation copyright. [FN9] See Feist, 499 U.S. at 363, 111 S.Ct. at 1297 ("As a constitutional matter, copyright protects only those constituent elements of a work that possess more than a de minimis quantum of creativity.").

FN9. The same conclusion can be arrived at using a different chain of reasoning. There is a fundamental distinction under the Copyright Act between the original work of authorship and the physical embodiment of that work in a tangible medium. See H.R.Rep. No. 94-1476, at 53 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5666 (noting "a fundamental distinction between the 'original work' which is the product of 'authorship' and the multitude of material objects in which it can be embodied. Thus, in the sense of the [Act], a 'book' is not a work of authorship, but is a particular kind of 'copy.' Instead, the author may write a 'literary work,' which in turn can be embodied in a wide range of 'copies' and 'phonorecords'...."). The embedding of the copyrightable work in a tangible medium does not mean that the features of the tangible medium are also copyrightable. Thus, here, the original element of West's compilation, its arrangement of cases, is protectable, while the features of the physical embodiment of the work, i.e., the page numbers, are not.

Because the volume and page numbers are unprotected features of West's compilation process, they may be copied without infringing West's copyright. [FN10] However, West proffers an alternative argument based on the fact (which West has plausibly demonstrated) *700 that plaintiffs have inserted or will insert all of West's volume and page numbers for certain case reporters. West's alternative argument is that even though the page numbering is not (by itself) a protectable element of West's compilation, (i) plaintiffs' star pagination to West's case reporters embeds West's arrangement of cases in plaintiffs' CD-ROM discs, thereby allowing a user to perceive West's protected arrangement [FN11] through the plaintiffs' file-retrieval programs, and (ii) that under the Copyright Act's definition of "copies," 17 U.S.C. § 101, a work that allows the perception of a protectable element of a compilation through the aid of a machine amounts to a copy of the compilation. We reject this argument for two separate reasons. [FN12]

FN10. The dissent would extend copyright protection to all page numbers because, when inserted into a complete set of opinions appearing in West's case reporters, they reflect the arrangement of those reporters. Dissent at page 709. But such an approach would extend copyright to page numbers which do not represent an exercise of original authorship. Although the arrangement of West's cases may be copyrightable, and although complete star pagination may permit the perception of that arrangement, there is no support for extending copyright protection to an unoriginal element because when completely copied it reveals a protected element rather than copies it.

FN11. West claims that its arrangement of cases, see supra note 3, is original and worthy of copyright protection. Hyperlaw (but not Bender) argues that West's arrangement of cases in the Supreme Court Reporter and the Federal Reporter (the case reporters containing the opinions included on HyperLaw's CD-ROM discs) is insufficiently original to be copyrightable. But because we find that West's arrangement has not been copied through the insertion of star pagination to West's case reporters, we can assume without deciding that West's case reporters contain an original and copyrightable arrangement.

In addition, this opinion will not address any copying by plaintiffs of the selection of cases included in West's case reporters. First, West argued below that Bender had copied West's arrangement of cases, not its selection. Second, it is uncontested that plaintiffs' compilations include many more opinions than West's case reporters. For example, HyperLaw's second quarter 1996 CD-ROM disc contained approximately 36,000 Supreme Court and court of appeals decisions, only 22,000 of which were published by West. The selection of cases for Bender's product also differs from West's: (i) it contains many unpublished decisions not found in West's reporters, and (ii) unlike West's Federal Reporter, Federal Supplement, and Federal Rules Decisions, Bender's product includes only federal cases decided by New York courts. Accordingly, we cannot find that the selection of cases in plaintiffs' compilations is substantially similar to West's selection. See Tasini v. New York Times Co., 972 F.Supp. 804, 823 (S.D.N.Y.1997) (Sotomayor, J.) (noting that to find infringement of selection, "the subsequent work cannot differ in selection by 'more than a trivial degree' from the work that preceded it") (citing Kregos v. Associated Press, 937 F.2d 700, 710 (2d Cir.1991)).

FN12. Plaintiffs cite Banks Law Publishing Co. v. Lawyers' Co-Operative Publishing Co., 169 F. 386 (2d Cir.1909), in arguing that star pagination to case reporters is permissible, and they intimate that Banks held that the arrangement of cases cannot be copyrightable. Banks 's holding seems to have rested on the plaintiff's status as an official reporter. See id. at 389 (reprint of text of district court opinion) ("A reasonable interpretation of the statute prescribing his duties implies pagination, volumes of uniform size and reasonable thickness, together with a suitable and convenient arrangement of the cases."). True, our opinion in Banks adds that "[i]t is not necessary to discuss so much of the opinion below as deals with the question[ ] of ... the right of the official reporter to secure copyrights," id. at 391, which could imply either that our holding did not rest on the official status of the reporter but on the lack of originality in the arrangement or that the foregone analysis concerns the copyrightability of elements not dictated by statute. In any event, Bender concedes for the purpose of summary judgment that West's arrangement is sufficiently original to merit copyright protection; Banks does not assist in answering the distinct question of whether star pagination infringes the arrangement of another reporter if the arrangement of the cross-paginated work is copyrightable; and Banks preceded even the effective date of the Copyright Act of 1909. We decline to decide this case on the strength of Banks.

A

[7] West asserts an indirect infringement theory: (i) the embedding of unprotectable volume and page numbers in a CD-ROM disc (so-called "compilation markers" or "tags"), (ii) permits a user to perceive West's arrangement of cases through the aid of a machine, and (iii) this amounts to a copy of the compilation's arrangement under § 101's definition of "copies." Assuming for the moment that West has properly read the Act, i.e., that a copy of the arrangement is created when the arrangement can be perceived with the aid of a user and a machine, we think it is clear that the copy is not created by insertion of star pagination.

West concedes that insertion of parallel citations (identifying the volume and first page numbers on which a particular case appears) to West's case reporters in plaintiffs' products (as well as any other compilations of judicial opinions) is permissible under the fair use doctrine. [FN13] See West Reply Brief at 5 n.5 (noting "West's long-held position *701that parallel citation to West case reports by competitors (without additional star pagination) is a fair use under 17 U.S.C. § 107--i.e., an otherwise infringing use that, when analyzed under the § 107 factors, is deemed 'fair' "); West's Response to Bender's Rule 3(g) Statement ¶ 32, Joint Appendix at 1581; see also West Publ'g Co. v. Mead Data Central, Inc., 799 F.2d 1219, 1222 (8th Cir.1986) ("West concedes that citation to the first page of its reports is a noninfringing 'fair use' under 17 U.S.C. § 107."). West admitted at oral argument (as it did in the district court [FN14]) that these parallel citations already allow a user of plaintiffs' CD-ROM discs to perceive West's arrangement with the aid of a machine and that plaintiffs' CD-ROM discs therefore already have created a lawful "copy" of West's arrangement on their CD-ROM discs--as West defines "copy." [FN15]

...

Once the copy has thus been created through parallel citation--assuming that anyone would wish to avail themselves of the capability of perceiving this copy--the only incremental data made perceivable (through the aid of a machine) by star pagination is the location of page breaks within each judicial opinion. But since page breaks do not result from any original creation by West, their location may be lawfully copied. We therefore conclude that star pagination's volume and page numbers merely convey unprotected information, and that their duplication does not infringe West's copyright.

The opposite conclusion was reached by the district court in Oasis Publishing Co. v. West Publishing Co., 924 F.Supp. 918 (D.Minn.1996), which reasoned that the fair-use copying of parallel citation, which could be used to perceive the arrangement of cases, did not excuse copying interior pagination, which could also be used to perceive arrangement. See id. at 926. [FN16] It is true that copying under the fair use doctrine will not necessarily permit additional uses, and will not excuse additional copying that in the aggregate amounts to infringement. But a compilation has limited protectability; only the original elements of a compilation (i.e., its selection, arrangement, and coordination) are protected from copying. The insertion of parallel citations already creates a "copy" of West's arrangement (at least as West defines a copy), a copy that is permissible under the fair use doctrine. Star pagination cannot be said to create another copy of the same arrangement. Prohibiting star pagination would simply allow West to protect unoriginal elements of its compilation that have assumed importance and value. Accordingly,*702even were we to agree with West's interpretation of the Copyright Act, we would not find infringement.

FN16. The court noted:

Although with either the parallel cites or an internal cite from each case a user could sort West's cases and determine West's arrangement, the former does not utterly supplant the need for West's product while the latter does.

Conceding parallel citation to the first page of each case as a noninfringing fair use does not diminish West's copyright interest in the subsequent internal pages, which also would independently permit arrangement of the cases by sorting. Having gotten the inch under the conceded fair use of parallel citation to the first page of each case, Oasis is not thereby entitled to take the entire mile in star citation to every page.

Oasis Publ'g Co., 924 F.Supp. at 926.

B

[8] But our rejection of West's position is even more fundamental. If one browses through plaintiffs' CD-ROM discs from beginning to end, using the computer software that reads and sorts it, the sequence of cases owes nothing to West's arrangement. West's argument is that the CD-ROM discs are infringing copies because a user who manipulates the data on the CD-ROM discs could at will re-sequence the cases (discarding many of them) into the West arrangement. To state West's theory in the statutory words on which West (mistakenly) relies, each of the plaintiffs' CD-ROM discs is a "copy" because West's copyrighted arrangement is "fixed" on the disc in a way that can be "perceived ... with the aid of a machine or device." 17 U.S.C. § 101 (1994).

For reasons set forth below, we conclude that a CD-ROM disc infringes a copyrighted arrangement when a machine or device that reads it perceives the embedded material in the copyrighted arrangement or in a substantially similar arrangement. At least absent some invitation, incentive, or facilitation not in the record here, a copyrighted arrangement is not infringed by a CD-ROM disc if a machine can perceive the arrangement only after another person uses the machine to re-arrange the material into the copyrightholder's arrangement.

1. Section 101's Definition of "Copies"

West relies on the statutory definition of "copies." To establish infringement, the copyright holder must demonstrate a violation of an exclusive right. 17 U.S.C. § 501 (1994). One such right is the right "to reproduce the copyrighted work in copies or phonorecords." 17 U.S.C. § 106(1) (1994) (emphasis added). Section 101 of the Copyright Act defines "copies" as follows, the emphasis supplied on terms implicated by the analysis in this case:

"Copies" are material objects, other than phonorecords, in which a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. The term "copies" includes the material object, other than the phonorecord, in which the work is first fixed.

17 U.S.C. § 101. "A work is 'fixed' in a tangible medium of expression when its embodiment in a copy ... is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration." Id. (emphasis added).

[9][10] The Copyright Act establishes a "fundamental distinction" between the original work of authorship and the material object in which that work is "fixed." See supra note 9. The sole purpose of § 101's definitions of the words "copies" and "fixed" is to explicate the "fixation" requirement, i.e., to define the material objects in which copyrightable and infringing works may be embedded and to describe the requisite fixed nature of that work within the material object. See 1 William F. Patry, Copyright Law and Practice 168 (1994) ("The two essential criteria of statutory copyright are originality and fixation."); id. at 174 (noting that the definition of "copies" is "intended to 'comprise all the material objects in which copyrightable objects are capable of being fixed' "). Under § 101's definition of "copies," a work satisfies the fixation requirement when it is fixed in a material object from which it can be perceived or communicated directly or with the aid of a machine. [FN17]

FN17. The wording of the definition is set forth in the previous paragraph of text. 17 U.S.C. § 101. The dissent argues that the first "work" in this passage references the allegedly infringing work, while the second "work" refers to the original work. Dissent at page 710. Our interpretation of the statute flows from a plain reading, under which the same meaning is attached to each reference to a "work"; there is no indication in the statute that the second "work" is intended to refer to the original work of authorship, as opposed to simply the work that is fixed in the material object.

This definition was intended to avoid the distinctions "derived from cases such as*703White-Smith Publishing Co. v. Apollo Co., 209 U.S. 1 [, 28 S.Ct. 319, 52 L.Ed. 655] (1908), under which statutory copyrightability in certain cases [had] been made to depend upon the form or medium in which the work is fixed." H.R.Rep. No. 94-1476, at 52 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5665; see also S.Rep. No. 94-473, at 51 (1975). [FN18] In White-Smith, the Supreme Court held that a piano roll did not infringe the copyrighted music it played because its perforations were unintelligible to the eye and therefore did not amount to a "copy" of the music (which the Court defined as " 'a written or printed record of [the musical composition] in intelligible notation' "). See White-Smith Publ'g Co., 209 U.S. at 17, 28 S.Ct. at 323. There was no question in that case that the work embodied in the piano roll reproduced the original work of authorship, i.e., the piece of music; the only question was whether this reproduction met the "fixation" requirement. Thus, the definition of "copies" is intended to expand the "fixation" requirement to include material objects that embody works capable of being perceived with the aid of a machine, thereby ensuring that reproductions of copyrighted works contained on media such as floppy disks, hard drives, and magnetic tapes would meet the Copyright Act's "fixation" requirement.

FN18. In explaining the fixation requirement, the House Report states in full:

As a basic condition of copyright protection, the bill perpetuates the existing requirement that a work be fixed in a "tangible medium of expression," and adds that this medium may be one "now known or later developed," and that the fixation is sufficient if the work "can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device." This broad language is intended to avoid the artificial and largely unjustifiable distinctions, derived from cases such as White-Smith Publishing Co. v. Apollo Co., 209 U.S. 1, 28 S.Ct. 319, 52 L.Ed. 655 (1908), under which statutory copyrightability in certain cases has been made to depend upon the form or medium in which the work is fixed. Under the bill it makes no difference what the form, manner, or medium of fixation may be--whether it is in words, numbers, notes, sounds, pictures, or any other graphic or symbolic indicia, whether embodied in a physical object in written, printed, photographic, sculptural, punched, magnetic, or any other stable form, and whether it is capable of perception directly or by means of any machine or device "now known or later developed."

H.R.Rep. No. 94-1476, at 52, reprinted in 1976 U.S.C.C.A.N. 5659, 5665 (footnote omitted).

That definition--intended to clarify that a work stored on a disk or tape can be a copy of the copyrighted work even if it cannot be perceived by human senses without technological aid--means that CD-ROM discs can infringe a copyright even if the information embedded upon them is not perceptible without the aid of a CD-ROM player. In this case, however, the only fixed arrangement is the (non-West) sequence that is embedded on plaintiffs' CD-ROM discs and that appears with the aid of a machine without manipulation of the data.

To recapitulate a bit, West relies on the definition of "copies" to argue that plaintiffs' CD-ROM discs duplicate its copyrighted arrangement of cases because star pagination permits a user to "perceive" the copyrighted element "with the aid of" a computer and the FOLIO retrieval system, i.e., by manipulating the data embedded on a CD-ROM disc to retrieve the cases in the order in which they appear in the West case reporters. West's definition of a copy, as applied to a CD-ROM disc, would expand the embedded work to include all arrangements and re arrangements that could be made by a third-party user who manipulates the data on his or her own initiative. But the relevant statutory wording refers to material objects in which "a work" readable by technology "is fixed," not to another work or works that can be created, unbidden, by using technology to alter the fixed embedding of the work, by rearrangement or otherwise. The natural reading of the statute is that the arrangement of the work is the one that can be perceived by a machine without an uninvited manipulation of the data.

West cites no case which supports its interpretation of § 101's definition of "copies," [FN19] and every case we have found has*704relied upon the definition solely to ascertain whether a work has met the fixation requirement, not to determine the arrangements and rearrangements of the work fixed on the material object. See, e.g., Stenograph L.L.C. v. Bossard Assocs., Inc., 144 F.3d 96, 100 (D.C.Cir.1998) (citing § 101's definition of "copies" to "support the proposition that the installation of software onto a computer results in 'copying' within the meaning of the Copyright Act"); Stern Elecs., Inc. v. Kaufman, 669 F.2d 852, 856 (2d Cir.1982) (using § 101's definition of "copies" to determine whether an audiovisual work met the "fixation" requirement); Sega Enters. Ltd. v. Accolade, Inc., 785 F.Supp. 1392, 1396 (N.D.Cal.) (using § 101 to determine whether an intermediate copy was actionable and noting substantial similarity between intermediate copy and allegedly infringed work as the test for determining whether intermediate copy was reproduction of copyrighted work), aff'd in part and rev'd in part, 977 F.2d 1510 (9th Cir.1992).

FN19. West relies on Tasini v. New York Times Co., 972 F.Supp. 804 (S.D.N.Y.1997) (Sotomayor, J.); but that case is completely consistent with our interpretation of § 101's definition of "copies." At issue in Tasini was a collective work author's right to produce several electronic databases containing the collective work under § 201(c)'s "revision" right for collective works. The contributors to the collective works argued, inter alia, that § 201(c) did not contemplate that a computer database of the collective work could amount to a revision, arguing that because § 201(c) did not confer the right to display the copyrighted work publicly, the work could not be reproduced on a computer because "a work cannot be reproduced electronically unless it is 'displayed' on a computer screen." Id. at 816. However, the court rejected this argument, noting that the reproduction right, which is granted under § 201(c), and "which necessarily encompasses the right to create copies of that work, presupposes that such copies might be 'perceived' from a computer terminal." Id.

This statement merely affirmed that a reproduction of an original work may be found on a material object that allows the work to be perceived on a computer terminal. But it does not explain the arrangement of the "work" fixed on that copy and whether a particular copy is a reproduction of the original work. Nor did Tasini read § 101's definition of "copies" to mean that the data was arranged in any way that could be perceived by a third party with the aid of a sorting device. In fact, when the court did consider whether the work embedded on the CD-ROM was substantially similar to the original collective work, it did not refer to § 101's definition of "copies". Id. at 823-25.

2. Substantial Similarity

The question presented--whether an element of West's copyrighted work has been reproduced in a "copy"--is answered by comparing the original and the allegedly infringing works, and inquiring whether the copyrightable elements are substantially similar. Under the facts of this case, the arrangement of the "work" on plaintiffs' CD-ROM discs is the arrangement of cases that is displayed by a CD player reading the information in the order in which it is physically embedded or "fixed" in the discs and not all possible arrangements that can be perceived through the manipulation and rearrangement of the embedded data by a third party user with a machine.

[11] The Supreme Court in Feist emphasized that copyright protection for a factual compilation is "thin," and that a compilation containing the same facts or non-copyrightable elements will not infringe unless it "feature[s] the same selection and arrangement" as the original compilation. Feist, 499 U.S. at 349, 111 S.Ct. at 1289 (emphasis added); see also Key Publications, Inc. v. Chinatown Today Publ'g Enters., Inc., 945 F.2d 509, 514 (2d Cir.1991) (holding that to establish infringement, a compilation copyright holder must demonstrate "substantial similarity between those elements, and only those elements, that provide copyrightability to the allegedly infringed compilation"). To determine whether two works contain a substantially similar arrangement, courts compare the ordering of material in the two works, finding infringement only when both compilations have featured a very similar literal ordering or format. See, e.g., Lipton v. Nature Co., 71 F.3d 464, 472 (2d Cir.1995) (finding infringement of arrangement when of 25 terms contained in copyrighted work, 21 are listed in same order on allegedly infringing work); Worth v. Selchow & Righter Co., 827 F.2d 569, 573 (9th Cir.1987) (holding that alphabetical arrangement of factual entries in a trivia encyclopedia was not copied by a copyrighted game that organized the factual entries by subject matter and random arrangement on game cards); see also Jane C. Ginsburg, No "Sweat"? Copyright and Other Protection of Works of Information After Feist v. Rural Telephone, *70592 Colum.L.Rev. 338, 349 (1992) (noting that under Feist, nothing "short of extensive verbatim copying" will amount to infringement of a compilation). "If the similarity concerns only noncopyrightable elements of [a copyright holder's] work, or no reasonable trier of fact could find the works substantially similar, summary judgment is appropriate." Williams v. Crichton, 84 F.3d 581, 587 (2d Cir.1996) (internal quotation marks and citations omitted). We agree with plaintiffs and amicus United States that West fails to demonstrate the requisite substantial similarity. [FN20] West's case reporters contain many fewer cases than plaintiffs' CD-ROM discs, and are arranged according to classification such as court, date, and genre (opinions, per curiam opinions, orders, etc.), subject to certain exceptions characterized by West as features of originality, whereas plaintiffs organize their cases simply by court and date. Comparison of the works reveals that cases that appear adjacent in the West case reporters are separated on plaintiffs' products by many other cases; and even if these other cases are disregarded, the West cases included on plaintiffs' products are not in an order at all resembling West's arrangement. ...

Star pagination (in addition to revealing the page location of the text of judicial opinions) may incidentally reveal to the reader how the reader could create a copy of West's arrangement by various computer key operations; but by the same token, if the CD-ROM discs were published on paper in the same order as the cases are embedded in the CD-ROM disc, a reader so minded could assemble a "copy" of the West arrangement by use of scissors. Cf. Horgan v. Macmillan, Inc., 789 F.2d 157, 162 (2d Cir.1986) (noting that "the standard for determining copyright infringement is not whether the original could be recreated from the allegedly infringing copy, but whether the latter is 'substantially similar' to the former").

True, CD-ROM technology is different from paper, for as West points out, the arrangement of judicial opinions in a CD-ROM disc does not correspond necessarily to how the information will be displayed or printed by the user, because the file-retrieval system allows users to retrieve cases in a variety of ways. See Robert C. Denicola, Copyright in Collections of Facts: A Theory for the Protection of Nonfiction Literary Works, 81 Colum.L.Rev. 516, 531 (1981) ("[I]t is often senseless to seek in [electronic databases] a specific, fixed arrangement of data."). But having rejected West's argument under § 101, we can conclude that the arrangement of plaintiffs' work is the sequence of cases as embedded on the plaintiffs' CD-ROM discs and as displayed to the user browsing through plaintiffs' products. That sequence is not substantially similar to West's case reporters. There is no evidence that Bender and HyperLaw's case-retrieval systems allow a user to browse the cases in the West *706 arrangement without first taking steps to create that arrangement. Thus, an actionable copy of West's sequence of cases, i.e., a work with a substantially similar arrangement fixed in a tangible medium (probably a print-out of the cases), could be created by a user of the CD-ROM discs, but only by using the file-retrieval program as electronic scissors. We cannot find that plaintiffs' products directly infringe West's copyright by inserting star pagination to West's case reporters.

3. Contributory Infringement

[12] Notwithstanding the absence of substantial similarity, a database manufacturer may be liable as a contributory infringer (in certain circumstances) for creating a product that assists a user to infringe a copyright directly. West has hypothesized that users of Bender and HyperLaw's products, using star pagination and the search functions of the CD-ROM products, will retrieve and print cases in the order in which they appear in West's case reporters. See Affidavit of Michael A. Trittipo ¶ 5, Joint Appendix at 1287. A CD-ROM disc user who replicated the West compilation in that way would be an infringer. But West has failed to identify any primary infringer, other than Mr. Trittipo, West's counsel. See Cable/Home Communication Corp. v. Network Prods., Inc., 902 F.2d 829, 845 (11th Cir.1990) ("Contributory infringement necessarily must follow a finding of direct or primary infringement."); 2 Paul Goldstein, Copyright § 6.0 (1996) ( "For a defendant to be held contributorily or vicariously liable, a direct infringement must have occurred.").

[13][14] Assuming there is a class of primary infringers, then a party "who, with knowledge of the infringing activity, induces, causes, or materially contributes to the infringing conduct of another, may be held liable as a 'contributory' infringer." See Gershwin Publ'g Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2d Cir.1971). Two types of activities that lead to contributory liability are: (i) personal conduct that encourages or assists the infringement; and (ii) provision of machinery or goods that facilitate the infringement. See ITSI T.V. Prods., Inc. v. California Auth. of Racing Fairs, 785 F.Supp. 854, 861 n. 13 (E.D.Cal.1992). West argues that Bender and HyperLaw's sale of their CD-ROM products falls within the second category.

[15] However, as amicus United States notes, the provision of equipment does not amount to contributory infringement if the equipment is "capable of substantial noninfringing uses," including uses authorized under the fair use doctrine. See Sony Corp. of Amer. v. Universal City Studios, Inc., 464 U.S. 417, 442, 104 S.Ct. 774, 788-89, 78 L.Ed.2d 574 (1984). In determining whether liability is foreclosed by substantial noninfringing uses, the Supreme Court in Sony emphasized that the alleged contributory infringer did not influence or encourage unlawful copying with the equipment it provided. Id. at 438, 104 S.Ct. at 787; see also Cable/Home Communication Corp., 902 F.2d at 846.

 C

We differ with the Eighth Circuit's opinion in West Publishing Co. v. Mead Data Central, Inc., 799 F.2d 1219 (8th Cir.1986). In that case, LEXIS (an on- line database provider) announced plans to star paginate its on-line version of cases to West case reporters. West claimed that the star pagination would allow users to page through cases as if they were reading West volumes, and in that way copied West's arrangement of cases. Id. at 1222. The court held that "West's arrangement is a copyrightable aspect of its compilation of cases, that the pagination of West's volumes reflects and expresses West's arrangement, and that MDC's intended use of West's page numbers infringes West's copyright in the arrangement." Id. at 1223. Even if it was not "possible to use LEXIS to page through cases as they are arranged in West volumes," the court said that insertion of comprehensive star pagination amounted to infringement:

Jump cites to West volumes within a case on LEXIS are infringing because they enable LEXIS users to discern the precise location in West's arrangement of the portion of the opinion being viewed....

With [LEXIS's] star pagination, consumers would no longer need to purchase West's reporters to get every aspect of West's arrangement. Since knowledge of the location of opinions and parts of opinions within West's arrangement is a large part of the reason one would purchase West's volumes, the LEXIS star pagination feature would adversely affect West's market position. "[A] use that supplants any part of the normal market for a copyrighted work would ordinarily be considered an infringement." S.Rep. No. 473, 94th Cong., 1st Sess. 65 (1975)....

*708 Id. at 1227-28; see also Oasis Publ'g Co. v. West Publ'g Co., 924 F.Supp. 918, 922-25 (D.Minn.1996) (holding that (i) West Publishing Co. had not been overruled by Feist 's disavowal of the "sweat of the brow" doctrine, and (ii) that even if it had, "the internal pagination of [West's reporter] is part of West's overall arrangement, and similarly protected").

The Eighth Circuit in West Publishing Co. adduces no authority for protecting pagination as a "reflection" of arrangement, and does not explain how the insertion of star pagination creates a "copy" featuring an arrangement of cases substantially similar to West's--rather than a dissimilar arrangement that simply references the location of text in West's case reporters and incidentally simplifies the task of someone who wants to reproduce West's arrangement of cases. It is true that star pagination enables users to locate (as closely as is useful) a piece of text within the West volume. But this location does not result in any proximate way from West's original arrangement of cases (or any other exercise of original creation) and may be lawfully copied So any damage to the marketability of West's reporters resulting from such copying is not cognizable under the Copyright Act. It is interesting that the Eighth Circuit's quotation from the Senate Report on supplanting use is drawn from the Report's discussion of the fair use doctrine, which applies only when the copyright holder has first demonstrated infringement of a protectable element of its work.

At bottom, West Publishing Co. rests upon the now defunct "sweat of the brow" doctrine. That court found that LEXIS had infringed West's copyright simply because it supplanted much of the need for West's case reporters through wholesale appropriation of West's page numbers. In reaching this conclusion, the court (i) noted that LEXIS's appropriation would deprive West of a large part of what it "[had] spent so much labor and industry in compiling," West Publ'g Co., 799 F.2d at 1227, and (ii) cited Hutchinson Telephone v. Fronteer Directory Co., 770 F.2d 128 (8th Cir.1985), see West Publ'g Co., 799 F.2d at 1228, which in turn relied on Leon v. Pacific Telephone & Telegraph Co., 91 F.2d 484 (9th Cir.1937), and Jeweler's Circular Pub Co v. Keystone Pub Co, 281 F. 83 (C.C.A.Cir.1922)--classic "sweat of the brow" cases that were overruled in Feist. Thus, the Eighth Circuit in West Publishing Co. erroneously protected West's industrious collection rather than its original creation. Because Feist undermines the reasoning of West Publishing Co., see United States v. Thomson Corp., 949 F.Supp. 907, 926 (D.D.C.1996), we decline to follow it.

CONCLUSION

We hold that Bender and HyperLaw will not infringe West's copyright by inserting star pagination to West's case reporters in their CD-ROM disc version of judicial opinions. The judgement of the district court is affirmed.

SWEET, District Judge.

I respectfully dissent.

This appeal from the grant of summary judgment in favor of the appellee Bender presents challenging issues, the extent of copyright protection for compilations under the § 501(a) and § 106(1) and (3) of Title 17, U.S.C., what constitutes copying in the electronic age, and the propriety of summary judgment in determining issues of fair use. Because the majority reaches conclusions on the first two issues, with which I disagree, and consequently failed to address the third issue, I feel required to dissent, emboldened by the holdings of the three other courts which have considered the issue, West Pub. Co. v. Mead Data Central, Inc., 616 F.Supp. 1571 (D.Minn.1985), aff'd, 799 F.2d 1219 (8th Cir.1986), cert. denied, 479 U.S. 1070, 107 S.Ct. 962, 93 L.Ed.2d 1010 (1987); Oasis Pub. Co. v. West Pub. Co., 924 F.Supp. 918 (D.Minn.1996), and reached conclusions contrary to those stated by the majority. By concluding that page numbers in the context of the West citation system are facts rather than an expression of originality the majority permits the appellee Bender and the intervenor Hyperlaw to appropriate the practical and commercial value of the West compilation.

The West page numbers which are inserted by appellee Bender in the text of each of *709 its CD-ROM disks [FN1] by star pagination result from the totality of the West compilation process which includes its concededly original and copyrightable work, i.e. attorney description, headnotes, method of citation and emending of parallel or alternate citations. These result in a compilation work with page numbers assigned mechanically. The West page numbers and the corresponding Bender and Hyperlaw star pagination are the keys which open the door to the entire West citation system which as the majority noted is an accepted, and in some instances, a required element for the citation of authorities.

FN1. Bender's CD-ROMs obtain the text of the opinions they report from Lexis, opinions which are, of course, in the public domain.

The majority initially assumes the copyrightability of the West work but cites the statement in Feist Publications, Inc., v. Rural Telephone Service Company, Inc., 499 U.S. 340, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991), that "a factual compilation is eligible for copyright if it features an original selection or arrangement of the facts, but the copyright is limited to the particular selection or arrangement. In no event may copyright extend to the facts themselves." 499 U.S. 340 at 350-51, 111 S.Ct. 1282, 113 L.Ed.2d 358, and its conclusion that the compiler's copyright is "thin" permitting a subsequent compiler to use facts "so long as the competing work does not feature the same selection and arrangement." Id. By characterizing star pagination as a fact, rather than as an essential part of the selection or arrangement the majority deprives the West pagination of its originality and consequent copyright protection.

The majority concludes that because the volume and page numbers are "unprotected features" of West's compilation process, they may be copied without infringing West's copyright. The majority reasons that, pursuant to the Copyright Act, the "embedding of the copyrightable work in a tangible medium does not mean that the features of the tangible medium are also copyrightable." Therefore, West's arrangement of cases is protectible, but the page numbers are not. The classification of page numbers as physical embodiment rather than the result of originality is the foundation stone of the majority's interpretation of the authorities dealing with the copyright statute.

In my view West's case arrangements, an essential part of which is page citations, are original works of authorship entitled to copyright protection. Comprehensive documentation of West's selection and arrangement of judicial opinions infringes the copyright in that work.

This reasoning is consistent with Feist. As discussed above, the majority notes that the compiler's copyright is "thin." Feist, 499 U.S. 340 at 350- 51, 111 S.Ct. 1282, 113 L.Ed.2d 358. Therefore, "a subsequent compiler remains free to use the facts contained in another's publication to aid in preparing a competing work, so long as the competing work does not feature the same selection and arrangement." Id. at 349, 111 S.Ct. 1282, (emphasis added). In this case, allowing plaintiffs to use the page numbers contained in West's publication enables them to feature West's same selection and arrangement. [FN2] Indeed, were it not for the ability to reproduce West's arrangement, its pagination would be of limited (if any) use.

FN2. It is immaterial that plaintiffs' products may display other arrangements as well as West's. The capability of a CD-ROM to display more than one arrangement does not make the encoding of an original selection and arrangement such as West's any less of an infringement.

It is also irrelevant that plaintiffs' products may contain material beyond West's selection and arrangement. Infringement is determined by how much of the copyright owner's work was taken, not by what else the copier's work contains. See e.g., Warner Bros., Inc. v. American Broadcasting Cos., Inc., 720 F.2d 231, 241 (2d Cir.1983).

According to Feist, "[t]he originality requirement articulated in the The Trade-Mark Cases and Burrow-Giles remains the touchstone of copyright protection today.... It is this bedrock principle of copyright that mandates the law's seemingly disparate treatment of facts and factual compilations." 499 U.S. 340 at 347, 111 S.Ct. 1282, 113 L.Ed.2d 358 (citations omitted).

..... Some of the most seminal developments in copyright law have been driven by technological change. There was a time when people questioned whether photographs, see Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. 53, 4 S.Ct. 279, 28 L.Ed. 349 (1884), or advertisements, see Bleistein v. Donaldson Lithographing Co., 188 U.S. 239, 23 S.Ct. 298, 47 L.Ed. 460 (1903), were copyrightable. Here again it is necessary to reconcile technology with pre-electronic principles of law. Clearly, plaintiffs' CD-ROM disks are not "copies" in the traditional sense. Yet, plaintiffs provide the ability for a user to push a button or two and obtain West's exact selection and arrangement. This technological capacity presents a new question. The majority's answer threatens to eviscerate copyright protection for compilations.

...

For these reasons I believe the grant of summary judgment granting the declaratory judgment requested by Bender was error, and I therefore dissent from the majority's affirmance of that judgment
 
 


Copyrightable Subject Matter -- Method of Operation

49 F.3d 807

63 USLW 2565,

1995 Copr.L.Dec. P 27,367,

34 U.S.P.Q.2d 1014

(Cite as: 49 F.3d 807) 

LOTUS DEVELOPMENT CORPORATION, Plaintiff, Appellee, v. BORLAND INTERNATIONAL, INC., Defendant, Appellant.

No. 93-2214.

United States Court of Appeals,

First Circuit.

Heard Oct. 6, 1994.

Decided March 9, 1995.

Before TORRUELLA, Chief Judge, BOUDIN and STAHL, Circuit Judges.

STAHL, Circuit Judge.

This appeal requires us to decide whether a computer menu command hierarchy is copyrightable subject matter. In particular, we must decide whether, as the district court held, plaintiff-appellee Lotus Development Corporation's copyright in Lotus 1-2-3, a computer spreadsheet program, was infringed by defendant-appellant Borland International, Inc., when Borland copied the Lotus 1-2-3 menu command hierarchy into its Quattro and Quattro Pro computer spreadsheet programs....

I.

Background

Lotus 1-2-3 is a spreadsheet program that enables users to perform accounting functions electronically on a computer. Users manipulate and control the program via a series of menu commands, such as "Copy," "Print," and "Quit." Users choose commands either by highlighting them on the screen or by typing their first letter. In all, Lotus 1-2-3 has 469 commands arranged into more than 50 menus and submenus.

Lotus 1-2-3, like many computer programs, allows users to write what are called "macros." By writing a macro, a user can designate a series of command choices with a single macro keystroke. Then, to execute that series of commands in multiple parts of the spreadsheet, rather than typing the whole series each time, the user only needs to type the single pre-programmed macro keystroke, causing the program to recall and perform the designated series of commands automatically. Thus, Lotus 1-2-3 macros *810shorten the time needed to set up and operate the program.

Borland released its first Quattro program to the public in 1987, after Borland's engineers had labored over its development for nearly three years. Borland's objective was to develop a spreadsheet program far superior to existing programs, including Lotus 1-2-3. In Borland's words, "[f]rom the time of its initial release ... Quattro included enormous innovations over competing spreadsheet products."

The district court found, and Borland does not now contest, that Borland included in its Quattro and Quattro Pro version 1.0 programs "a virtually identical copy of the entire 1-2-3 menu tree." Borland III, 831 F.Supp. at 212 (emphasis in original). In so doing, Borland did not copy any of Lotus's underlying computer code; it copied only the words and structure of Lotus's menu command hierarchy. Borland included the Lotus menu command hierarchy in its programs to make them compatible with Lotus 1-2-3 so that spreadsheet users who were already familiar with Lotus 1-2-3 would be able to switch to the Borland programs without having to learn new commands or rewrite their Lotus macros.

In its Quattro and Quattro Pro version 1.0 programs, Borland achieved compatibility with Lotus 1-2-3 by offering its users an alternate user interface, the "Lotus Emulation Interface." By activating the Emulation Interface, Borland users would see the Lotus menu commands on their screens and could interact with Quattro or Quattro Pro as if using Lotus 1-2-3, albeit with a slightly different looking screen and with many Borland options not available on Lotus 1-2-3. In effect, Borland allowed users to choose how they wanted to communicate with Borland's spreadsheet programs: either by using menu commands designed by Borland, or by using the commands and command structure used in Lotus 1-2-3 augmented by Borland-added commands.

Lotus filed this action against Borland in the District of Massachusetts on July 2, 1990, four days after a district court held that the Lotus 1-2-3 "menu structure, taken as a whole--including the choice of command terms [and] the structure and order of those terms," was protected expression covered by Lotus's copyrights. Lotus Dev. Corp. v. Paperback Software Int'l, 740 F.Supp. 37, 68, 70 (D.Mass.1990) ("Paperback "). [FN1] Three days earlier, on the morning after the Paperback decision, Borland had filed a declaratory judgment action against Lotus in the Northern District of California, seeking a declaration of non-infringement. On September 10, 1990, the district court in California dismissed Borland's declaratory judgment action in favor of this action.

FN1. Judge Keeton presided over both the Paperback litigation and this case.

Lotus and Borland filed cross motions for summary judgment; the district court denied both motions on March 20, 1992, concluding that "neither party's motion is supported by the record." Borland I, 788 F.Supp. at 80. The district court invited the parties to file renewed summary judgment motions that would "focus their arguments more precisely" in light of rulings it had made in conjunction with its denial of their summary judgment motions. Id. at 82. Both parties filed renewed motions for summary judgment on April 24, 1992. In its motion, Borland contended that the Lotus 1-2-3 menus were not copyrightable as a matter of law and that no reasonable trier of fact could find that the similarity between its products and Lotus 1-2-3 was sufficient to sustain a determination of infringement. Lotus contended in its motion that Borland had copied Lotus 1-2-3's entire user interface and had thereby infringed Lotus's copyrights.

On July 31, 1992, the district court denied Borland's motion and granted Lotus's motion in part. The district court ruled that the Lotus menu command hierarchy was copyrightable expression because

[a] very satisfactory spreadsheet menu tree can be constructed using different commands and a different command structure from those of Lotus 1-2- 3. In fact, Borland has constructed just such an alternate tree for use in Quattro Pro's native mode. Even if one holds the arrangement of menu commands constant, it is possible to generate literally millions of satisfactory *811 menu trees by varying the menu commands employed.

Borland II, 799 F.Supp. at 217. The district court demonstrated this by offering alternate command words for the ten commands that appear in Lotus's main menu. Id. For example, the district court stated that "[t]he 'Quit' command could be named 'Exit' without any other modifications," and that "[t]he 'Copy' command could be called 'Clone,' 'Ditto,' 'Duplicate,' 'Imitate,' 'Mimic,' 'Replicate,' and 'Reproduce,' among others." Id. Because so many variations were possible, the district court concluded that the Lotus developers' choice and arrangement of command terms, reflected in the Lotus menu command hierarchy, constituted copyrightable expression.

In granting partial summary judgment to Lotus, the district court held that Borland had infringed Lotus's copyright in Lotus 1-2-3:

[A]s a matter of law, Borland's Quattro products infringe the Lotus 1-2-3 copyright because of (1) the extent of copying of the "menu commands" and "menu structure" that is not genuinely disputed in this case, (2) the extent to which the copied elements of the "menu commands" and "menu structure" contain expressive aspects separable from the functions of the "menu commands" and "menu structure," and (3) the scope of those copied expressive aspects as an integral part of Lotus 1-2-3.

Borland II, 799 F.Supp. at 223 (emphasis in original). The court nevertheless concluded that while the Quattro and Quattro Pro programs infringed Lotus's copyright, Borland had not copied the entire Lotus 1-2-3 user interface, as Lotus had contended. Accordingly, the court concluded that a jury trial was necessary to determine the scope of Borland's infringement, including whether Borland copied the long prompts [FN2] of Lotus 1-2-3, whether the long prompts contained expressive elements, and to what extent, if any, functional constraints limited the number of possible ways that the Lotus menu command hierarchy could have been arranged at the time of its creation. See Borland III, 831 F.Supp. at 207. Additionally, the district court granted Lotus summary judgment on Borland's affirmative defense of waiver, but not on its affirmative defenses of laches and estoppel. Borland II, 799 F.Supp. at 222-23.

FN2. Lotus 1-2-3 utilizes a two-line menu; the top line lists the commands from which the user may choose, and the bottom line displays what Lotus calls its "long prompts." The long prompts explain, as a sort of "help text," what the highlighted menu command will do if entered. For example, the long prompt for the "Worksheet" command displays the submenu that the "Worksheet" command calls up; it reads "Global, Insert, Delete, Column, Erase, Titles, Window, Status, Page." The long prompt for the "Copy" command explains what function the "Copy" command will perform: "Copy a cell or range of cells." The long prompt for the "Quit" command reads, "End 1-2-3 session (Have you saved your work?)."

Prior to trial, the parties agreed to exclude the copying of the long prompts from the case; Lotus agreed not to contend that Borland had copied the long prompts, Borland agreed not to argue that it had not copied the long prompts, and both sides agreed not to argue that the issue of whether Borland had copied the long prompts was material to any other issue in the case. See Borland III, 831 F.Supp. at 208.

Immediately following the district court's summary judgment decision, Borland removed the Lotus Emulation Interface from its products. Thereafter, Borland's spreadsheet programs no longer displayed the Lotus 1-2-3 menus to Borland users, and as a result Borland users could no longer communicate with Borland's programs as if they were using a more sophisticated version of Lotus 1-2-3. Nonetheless, Borland's programs continued to be partially compatible with Lotus 1-2-3, for Borland retained what it called the "Key Reader" in its Quattro Pro programs. Once turned on, the Key Reader allowed Borland's programs to understand and perform some Lotus 1-2-3 macros. [FN3] With the Key Reader on, the Borland programs used Quattro Pro menus for display, interaction, and macro execution, except when they encountered a slash ("/") key in a macro (the starting key for any Lotus 1-2-3 *812macro), in which case they interpreted the macro as having been written for Lotus 1-2-3. Accordingly, people who wrote or purchased macros to shorten the time needed to perform an operation in Lotus 1-2-3 could still use those macros in Borland's programs. [FN4] The district court permitted Lotus to file a supplemental complaint alleging that the Key Reader infringed its copyright.

FN3. Because Borland's programs could no longer display the Lotus menu command hierarchy to users, the Key Reader did not allow debugging ormodification of macros, nor did it permit the execution of most interactive macros.

FN4. See Borland IV, 831 F.Supp. at 226-27, for a more detailed explanation of macros and the Key Reader.

The parties agreed to try the remaining liability issues without a jury. The district court held two trials, the Phase I trial covering all remaining issues raised in the original complaint (relating to the Emulation Interface) and the Phase II trial covering all issues raised in the supplemental complaint (relating to the Key Reader). At the Phase I trial, there were no live witnesses, although considerable testimony was presented in the form of affidavits and deposition excerpts. The district court ruled upon evidentiary objections counsel interposed. At the Phase II trial, there were two live witnesses, each of whom demonstrated the programs for the district court.

After the close of the Phase I trial, the district court permitted Borland to amend its answer to include the affirmative defense of "fair use." Because Borland had presented all of the evidence supporting its fair-use defense during the Phase I trial, but Lotus had not presented any evidence on fair use (as the defense had not been raised before the conclusion of the Phase I trial), the district court considered Lotus's motion for judgment on partial findings of fact. See Fed.R.Civ.P. 52(c). The district court held that Borland had failed to show that its use of the Lotus 1-2-3 menu command hierarchy in its Emulation Interface was a fair use. See Borland III, 831 F.Supp. at 208.

In its Phase I-trial decision, the district court found that "each of the Borland emulation interfaces contains a virtually identical copy of the 1-2-3 menu tree and that the 1-2-3 menu tree is capable of a wide variety of expression." Borland III, 831 F.Supp. at 218. The district court also rejected Borland's affirmative defenses of laches and estoppel. Id. at 218- 23.

In its Phase II-trial decision, the district court found that Borland's Key Reader file included "a virtually identical copy of the Lotus menu tree structure, but represented in a different form and with first letters of menu command names in place of the full menu command names." Borland IV, 831 F.Supp. at 228. In other words, Borland's programs no longer included the Lotus command terms, but only their first letters. The district court held that "the Lotus menu structure, organization, and first letters of the command names ... constitute part of the protectable expression found in [Lotus 1-2- 3]." Id. at 233. Accordingly, the district court held that with its Key Reader, Borland had infringed Lotus's copyright. Id. at 245. The district court also rejected Borland's affirmative defenses of waiver, laches, estoppel, and fair use. Id. at 235-45. The district court then entered a permanent injunction against Borland, id. at 245, from which Borland appeals.

This appeal concerns only Borland's copying of the Lotus menu command hierarchy into its Quattro programs and Borland's affirmative defenses to such copying. Lotus has not cross-appealed; in other words, Lotus does not contend on appeal that the district court erred in finding that Borland had not copied other elements of Lotus 1-2-3, such as its screen displays.

II.

Discussion

On appeal, Borland does not dispute that it factually copied the words and arrangement of the Lotus menu command hierarchy. Rather, Borland argues that it "lawfully copied the unprotectable menus of Lotus 1-2-3." Borland contends that the Lotus menu command hierarchy is not copyrightable because it is a system, method of operation, process, or procedure foreclosed from protection by 17 U.S.C. § 102(b). Borland also raises a number of affirmative defenses.

*813 A. Copyright Infringement Generally

[1][2] To establish copyright infringement, a plaintiff must prove "(1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original." Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361, 111 S.Ct. 1282, 1296, 113 L.Ed.2d 358 (1991); see also Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1160 n. 19 (1st Cir.1994); Concrete Mach. Co. v. Classic Lawn Ornaments, Inc., 843 F.2d 600, 605 (1st Cir.1988). To show ownership of a valid copyright and therefore satisfy Feist's first prong, a plaintiff must prove that the work as a whole is original and that the plaintiff complied with applicable statutory formalities. See Engineering Dynamics, Inc. v. Structural Software, Inc., 26 F.3d 1335, 1340 (5th Cir.1994). "In judicial proceedings, a certificate of copyright registration constitutes prima facie evidence of copyrightability and shifts the burden to the defendant to demonstrate why the copyright is not valid." Bibbero Sys., Inc. v. Colwell Sys., Inc., 893 F.2d 1104, 1106 (9th Cir.1990); see also 17 U.S.C. § 410(c); Folio Impressions, Inc. v. Byer California, 937 F.2d 759, 763 (2d Cir.1991) (presumption of validity may be rebutted).

[3][4] To show actionable copying and therefore satisfy Feist's second prong, a plaintiff must first prove that the alleged infringer copied plaintiff's copyrighted work as a factual matter; to do this, he or she may either present direct evidence of factual copying or, if that is unavailable, evidence that the alleged infringer had access to the copyrighted work and that the offending and copyrighted works are so similar that the court may infer that there was factual copying (i.e., probative similarity). Engineering Dynamics, 26 F.3d at 1340; see also Concrete Mach., 843 F.2d at 606. The plaintiff must then prove that the copying of copyrighted material was so extensive that it rendered the offending and copyrighted works substantially similar. See Engineering Dynamics, 26 F.3d at 1341.

In this appeal, we are faced only with whether the Lotus menu command hierarchy is copyrightable subject matter in the first instance, for Borland concedes that Lotus has a valid copyright in Lotus 1-2-3 as a whole [FN5] and admits to factually copying the Lotus menu command hierarchy. As a result, this appeal is in a very different posture from most copyright-infringement cases, for copyright infringement generally turns on whether the defendant has copied protected expression as a factual matter. Because of this different posture, most copyright-infringement cases provide only limited help to us in deciding this appeal. This is true even with respect to those copyright- infringement cases that deal with computers and computer software.

 FN5. Computer programs receive copyright protection as "literary works." See 17 U.S.C. § 102(a)(1) (granting protection to "literary works") and 17 U.S.C. § 101 (defining "literary works" as "works ... expressed in words, numbers, or other verbal or numerical symbols or indicia, regardless of the nature of the material objects, such as books, periodicals, phonorecords, film, tapes, disks, or cards, in which they are embodied" (emphasis added)); see also H.R.Rep. No. 1476, 94th Cong., 2d Sess. 54 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5667 ("The term 'literary works' ... includes computer data bases, and computer programs to the extent that they incorporate authorship in the programmer's expression of original ideas, as distinguished from the ideas themselves.").

B. Matter of First Impression

Whether a computer menu command hierarchy constitutes copyrightable subject matter is a matter of first impression in this court. While some other courts appear to have touched on it briefly in dicta, see, e.g., Autoskill, Inc. v. National Educ. Support Sys., Inc., 994 F.2d 1476, 1495 n. 23 (10th Cir.), cert. denied, 510 U.S. 916, 114 S.Ct. 307, 126 L.Ed.2d 254 (1993), we know of no cases that deal with the copyrightability of a menu command hierarchy standing on its own (i.e., without other elements of the user interface, such as screen displays, in issue). Thus we are navigating in uncharted waters.

Borland vigorously argues, however, that the Supreme Court charted our course more than 100 years ago when it decided Baker v. Selden, 101 U.S. 99, 25 L.Ed. 841 (1879). In Baker v. Selden, the Court held that Selden's copyright over the textbook in which he explained *814 his new way to do accounting did not grant him a monopoly on the use of his accounting system. [FN6] Borland argues:

FN6. Selden's system of double-entry bookkeeping is the now almost- universal T-accounts system.

The facts of Baker v. Selden, and even the arguments advanced by the parties in that case, are identical to those in this case. The only difference is that the "user interface" of Selden's system was implemented by pen and paper rather than by computer.

To demonstrate that Baker v. Selden and this appeal both involve accounting systems, Borland even supplied this court with a video that, with special effects, shows Selden's paper forms "melting" into a computer screen and transforming into Lotus 1-2-3.

We do not think that Baker v. Selden is nearly as analogous to this appeal as Borland claims. Of course, Lotus 1-2-3 is a computer spreadsheet, and as such its grid of horizontal rows and vertical columns certainly resembles an accounting ledger or any other paper spreadsheet. Those grids, however, are not at issue in this appeal for, unlike Selden, Lotus does not claim to have a monopoly over its accounting system. Rather, this appeal involves Lotus's monopoly over the commands it uses to operate the computer. Accordingly, this appeal is not, as Borland contends, "identical" to Baker v. Selden.

C. Altai

[5] Before we analyze whether the Lotus menu command hierarchy is a system, method of operation, process, or procedure, we first consider the applicability of the test the Second Circuit set forth in Computer Assoc. Int'l, Inc. v. Altai, Inc., 982 F.2d 693 (2d Cir.1992). [FN7] The Second Circuit designed its Altai test to deal with the fact that computer programs, copyrighted as "literary works," can be infringed by what is known as "nonliteral" copying, which is copying that is paraphrased or loosely paraphrased rather than word for word. See id. at 701 (citing nonliteral-copying cases); see also 3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 13.03[A][1] (1993). When faced with nonliteral-copying cases, courts must determine whether similarities are due merely to the fact that the two works share the same underlying idea or whether they instead indicate that the second author copied the first author's expression. The Second Circuit designed its Altai test to deal with this situation in the computer context, specifically with whether one computer program copied nonliteral expression from another program's code.

FN7. We consider the Altai test because both parties and many of the amici focus on it so heavily. Borland, in particular, is highly critical of the district court for not employing the Altai test. Borland does not, however, indicate how using that test would have been dispositive in Borland's favor. Interestingly, Borland appears to contradict its own reasoning at times by criticizing the applicability of the Altai test.

The Altai test involves three steps: abstraction, filtration, and comparison. The abstraction step requires courts to "dissect the allegedly copied program's structure and isolate each level of abstraction contained within it." Altai, 982 F.2d at 707. This step enables courts to identify the appropriate framework within which to separate protectable expression from unprotected ideas. Second, courts apply a "filtration" step in which they examine "the structural components at each level of abstraction to determine whether their particular inclusion at that level was 'idea' or was dictated by considerations of efficiency, so as to be necessarily incidental to that idea; required by factors external to the program itself; or taken from the public domain." Id. Finally, courts compare the protected elements of the infringed work (i.e., those that survived the filtration screening) to the corresponding elements of the allegedly infringing work to determine whether there was sufficient copying of protected material to constitute infringement. Id. at 710.

In the instant appeal, we are not confronted with alleged nonliteral copying of computer code. Rather, we are faced with Borland's deliberate, literal copying of the Lotus menu command hierarchy. Thus, we must determine not whether nonliteral copying occurred in some amorphous sense, but rather whether the literal copying of the Lotus *815 menu command hierarchy constitutes copyright infringement.

[6] While the Altai test may provide a useful framework for assessing the alleged nonliteral copying of computer code, we find it to be of little help in assessing whether the literal copying of a menu command hierarchy constitutes copyright infringement. In fact, we think that the Altai test in this context may actually be misleading because, in instructing courts to abstract the various levels, it seems to encourage them to find a base level that includes copyrightable subject matter that, if literally copied, would make the copier liable for copyright infringement. [FN8] While that base (or literal) level would not be at issue in a nonliteral-copying case like Altai, it is precisely what is at issue in this appeal. We think that abstracting menu command hierarchies down to their individual word and menu levels and then filtering idea from expression at that stage, as both the Altai and the district court tests require, obscures the more fundamental question of whether a menu command hierarchy can be copyrighted at all. The initial inquiry should not be whether individual components of a menu command hierarchy are expressive, but rather whether the menu command hierarchy as a whole can be copyrighted. But see Gates Rubber Co. v. Bando Chem. Indus., Ltd., 9 F.3d 823 (10th Cir.1993) (endorsing Altai's abstraction-filtration-comparison test as a way of determining whether "menus and sorting criteria" are copyrightable).

FN8. We recognize that Altai never states that every work contains a copyrightable "nugget" of protectable expression. Nonetheless, the implication is that for literal copying, "it is not necessary to determine the level of abstraction at which similarity ceases to consist of an 'expression of ideas,' because literal similarity by definition is always a similarity as to the expression of ideas." 3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 13.03[A](2) (1993).

D. The Lotus Menu Command Hierarchy: A "Method of Operation"

Borland argues that the Lotus menu command hierarchy is uncopyrightable because it is a system, method of operation, process, or procedure foreclosed from copyright protection by 17 U.S.C. § 102(b). Section 102(b) states: "In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work." Because we conclude that the Lotus menu command hierarchy is a method of operation, we do not consider whether it could also be a system, process, or procedure.

[7][8][9] We think that "method of operation," as that term is used in § 102(b), refers to the means by which a person operates something, whether it be a car, a food processor, or a computer. Thus a text describing how to operate something would not extend copyright protection to the method of operation itself; other people would be free to employ that method and to describe it in their own words. Similarly, if a new method of operation is used rather than described, other people would still be free to employ or describe that method.

[10] We hold that the Lotus menu command hierarchy is an uncopyrightable "method of operation." The Lotus menu command hierarchy provides the means by which users control and operate Lotus 1-2-3. If users wish to copy material, for example, they use the "Copy" command. If users wish to print material, they use the "Print" command. Users must use the command terms to tell the computer what to do. Without the menu command hierarchy, users would not be able to access and control, or indeed make use of, Lotus 1-2-3's functional capabilities.

The Lotus menu command hierarchy does not merely explain and present Lotus 1- 2-3's functional capabilities to the user; it also serves as the method by which the program is operated and controlled. The Lotus menu command hierarchy is different from the Lotus long prompts, for the long prompts are not necessary to the operation of the program; users could operate Lotus 1-2-3 even if there were no long prompts. [FN9] The Lotus*816menu command hierarchy is also different from the Lotus screen displays, for users need not "use" any expressive aspects of the screen displays in order to operate Lotus 1-2-3; because the way the screens look has little bearing on how users control the program, the screen displays are not part of Lotus 1-2-3's "method of operation." [FN10] The Lotus menu command hierarchy is also different from the underlying computer code, because while code is necessary for the program to work, its precise formulation is not. In other words, to offer the same capabilities as Lotus 1-2-3, Borland did not have to copy Lotus's underlying code (and indeed it did not); to allow users to operate its programs in substantially the same way, however, Borland had to copy the Lotus menu command hierarchy. Thus the Lotus 1-2-3 code is not a uncopyrightable "method of operation." [FN11]

FN9. As the Lotus long prompts are not before us on appeal, we take no position on their copyrightability, although we do note that a strong argument could be made that the brief explanations they provide "merge" with the underlying idea of explaining such functions. See Morrissey v. Procter & Gamble Co., 379 F.2d 675, 678-79 (1st Cir.1967) (when the possible ways to express an idea are limited, the expression "merges" with the idea and is therefore uncopyrightable; when merger occurs, identical copying is permitted).

FN10. As they are not before us on appeal, we take no position on whether the Lotus 1-2-3 screen displays constitute original expression capable of being copyrighted.

FN11. Because the Lotus 1-2-3 code is not before us on appeal, we take no position on whether it is copyrightable. We note, however, that original computer codes generally are protected by copyright. See, e.g., Altai, 982 F.2d at 702 ("It is now well settled that the literal elements of computer programs, i.e., their source and object codes, are the subject of copyright protection.") (citing cases).

The district court held that the Lotus menu command hierarchy, with its specific choice and arrangement of command terms, constituted an "expression" of the "idea" of operating a computer program with commands arranged hierarchically into menus and submenus. Borland II, 799 F.Supp. at 216. Under the district court's reasoning, Lotus's decision to employ hierarchically arranged command terms to operate its program could not foreclose its competitors from also employing hierarchically arranged command terms to operate their programs, but it did foreclose them from employing the specific command terms and arrangement that Lotus had used. In effect, the district court limited Lotus 1-2-3's "method of operation" to an abstraction.

[11][12] Accepting the district court's finding that the Lotus developers made some expressive choices in choosing and arranging the Lotus command terms, we nonetheless hold that that expression is not copyrightable because it is part of Lotus 1-2-3's "method of operation." We do not think that "methods of operation" are limited to abstractions; rather, they are the means by which a user operates something. If specific words are essential to operating something, then they are part of a "method of operation" and, as such, are unprotectable. This is so whether they must be highlighted, typed in, or even spoken, as computer programs no doubt will soon be controlled by spoken words.

The fact that Lotus developers could have designed the Lotus menu command hierarchy differently is immaterial to the question of whether it is a "method of operation." In other words, our initial inquiry is not whether the Lotus menu command hierarchy incorporates any expression. [FN12] Rather, our initial inquiry is whether the Lotus menu command hierarchy is a "method of operation." Concluding, as we do, that users operate Lotus 1-2-3 by using the Lotus menu command hierarchy, and that the entire Lotus menu command hierarchy is essential to operating Lotus 1-2-3, we do not inquire further whether that method of operation could have been designed differently. The "expressive" choices of what to name the command terms and how to arrange them do not magically change the uncopyrightable menu command hierarchy into copyrightable subject matter.

FN12. We think that the Altai test would contemplate this being the initial inquiry.

Our holding that "methods of operation" are not limited to mere abstractions is bolstered by Baker v. Selden. In Baker, the Supreme Court explained that

the teachings of science and the rules and methods of useful art have their final end in application and use; and this application *817and use are what the public derive from the publication of a book which teaches them.... The description of the art in a book, though entitled to the benefit of copyright, lays no foundation for an exclusive claim to the art itself. The object of the one is explanation; the object of the other is use. The former may be secured by copyright. The latter can only be secured, if it can be secured at all, by letters-patent.

Baker v. Selden, 101 U.S. at 104-05. Lotus wrote its menu command hierarchy so that people could learn it and use it. Accordingly, it falls squarely within the prohibition on copyright protection established in Baker v. Selden and codified by Congress in § 102(b).

In many ways, the Lotus menu command hierarchy is like the buttons used to control, say, a video cassette recorder ("VCR"). A VCR is a machine that enables one to watch and record video tapes. Users operate VCRs by pressing a series of buttons that are typically labelled "Record, Play, Reverse, Fast Forward, Pause, Stop/Eject." That the buttons are arranged and labeled does not make them a "literary work," nor does it make them an "expression" of the abstract "method of operating" a VCR via a set of labeled buttons. Instead, the buttons are themselves the "method of operating" the VCR.

When a Lotus 1-2-3 user chooses a command, either by highlighting it on the screen or by typing its first letter, he or she effectively pushes a button. Highlighting the "Print" command on the screen, or typing the letter "P," is analogous to pressing a VCR button labeled "Play."

Just as one could not operate a buttonless VCR, it would be impossible to operate Lotus 1-2-3 without employing its menu command hierarchy. Thus the Lotus command terms are not equivalent to the labels on the VCR's buttons, but are instead equivalent to the buttons themselves. Unlike the labels on a VCR's buttons, which merely make operating a VCR easier by indicating the buttons' functions, the Lotus menu commands are essential to operating Lotus 1-2-3. Without the menu commands, there would be no way to "push" the Lotus buttons, as one could push unlabeled VCR buttons. While Lotus could probably have designed a user interface for which the command terms were mere labels, it did not do so here. Lotus 1-2-3 depends for its operation on use of the precise command terms that make up the Lotus menu command hierarchy.

One might argue that the buttons for operating a VCR are not analogous to the commands for operating a computer program because VCRs are not copyrightable, whereas computer programs are. VCRs may not be copyrighted because they do not fit within any of the § 102(a) categories of copyrightable works; the closest they come is "sculptural work." Sculptural works, however, are subject to a "useful-article" exception whereby "the design of a useful article ... shall be considered a pictorial, graphic, or sculptural work only if, and only to the extent that, such design incorporates pictorial, graphic, or sculptural features that can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article." 17 U.S.C. § 101. A "useful article" is "an article having an intrinsic utilitarian function that is not merely to portray the appearance of the article or to convey information." Id. Whatever expression there may be in the arrangement of the parts of a VCR is not capable of existing separately from the VCR itself, so an ordinary VCR would not be copyrightable.

Computer programs, unlike VCRs, are copyrightable as "literary works." 17 U.S.C. § 102(a). Accordingly, one might argue, the "buttons" used to operate a computer program are not like the buttons used to operate a VCR, for they are not subject to a useful-article exception. The response, of course, is that the arrangement of buttons on a VCR would not be copyrightable even without a useful-article exception, because the buttons are an uncopyrightable "method of operation." Similarly, the "buttons" of a computer program are also an uncopyrightable "method of operation."

[13] That the Lotus menu command hierarchy is a "method of operation" becomes clearer when one considers program compatibility. Under Lotus's theory, if a user uses *818 several different programs, he or she must learn how to perform the same operation in a different way for each program used. For example, if the user wanted the computer to print material, then the user would have to learn not just one method of operating the computer such that it prints, but many different methods. We find this absurd. The fact that there may be many different ways to operate a computer program, or even many different ways to operate a computer program using a set of hierarchically arranged command terms, does not make the actual method of operation chosen copyrightable; it still functions as a method for operating the computer and as such is uncopyrightable.

Consider also that users employ the Lotus menu command hierarchy in writing macros. Under the district court's holding, if the user wrote a macro to shorten the time needed to perform a certain operation in Lotus 1-2-3, the user would be unable to use that macro to shorten the time needed to perform that same operation in another program. Rather, the user would have to rewrite his or her macro using that other program's menu command hierarchy. This is despite the fact that the macro is clearly the user's own work product. We think that forcing the user to cause the computer to perform the same operation in a different way ignores Congress's direction in § 102(b) that "methods of operation" are not copyrightable. That programs can offer users the ability to write macros in many different ways does not change the fact that, once written, the macro allows the user to perform an operation automatically. As the Lotus menu command hierarchy serves as the basis for Lotus 1-2-3 macros, the Lotus menu command hierarchy is a "method of operation."

[14] In holding that expression that is part of a "method of operation" cannot be copyrighted, we do not understand ourselves to go against the Supreme Court's holding in Feist. In Feist, the Court explained:

The primary objective of copyright is not to reward the labor of authors, but to promote the Progress of Science and useful Arts. To this end, copyright assures authors the right to their original expression, but encourages others to build freely upon the ideas and information conveyed by a work.

Feist, 499 U.S. at 349-50, 111 S.Ct. at 1290 (quotations and citations omitted). We do not think that the Court's statement that "copyright assures authors the right to their original expression" indicates that all expression is necessarily copyrightable; while original expression is necessary for copyright protection, we do not think that it is alone sufficient. Courts must still inquire whether original expression falls within one of the categories foreclosed from copyright protection by § 102(b), such as being a "method of operation."

We also note that in most contexts, there is no need to "build" upon other people's expression, for the ideas conveyed by that expression can be conveyed by someone else without copying the first author's expression. [FN13] In the context of methods of operation, however, "building" requires the use of the precise method of operation already employed; otherwise, "building" would require dismantling, too. Original developers are not the only people entitled to build on the methods of operation they create; anyone can. Thus, Borland may build on the method of operation that Lotus designed and may use the Lotus menu command hierarchy in doing so.

FN13. When there are a limited number of ways to express an idea, however, the expression "merges" with the idea and becomes uncopyrightable. Morrissey, 379 F.2d at 678-79.

Our holding that methods of operation are not limited to abstractions goes against Autoskill, 994 F.2d at 1495 n. 23, in which the Tenth Circuit rejected the defendant's argument that the keying procedure used in a computer program was an uncopyrightable "procedure" or "method of operation" under § 102(b). The program at issue, which was designed to test and train students with reading deficiencies, id. at 1481, required students to select responses to the program's queries "by pressing the 1, 2, or 3 keys." Id. at 1495 n. 23. The Tenth Circuit held that, "for purposes of the preliminary injunction, ... the record showed that [this] keying procedure reflected at least a minimal degree *819 of creativity," as required by Feist for copyright protection. Id. As an initial matter, we question whether a programmer's decision to have users select a response by pressing the 1, 2, or 3 keys is original. More importantly, however, we fail to see how "a student select[ing] a response by pressing the 1, 2, or 3 keys," id., can be anything but an unprotectable method of operation. [FN14]

FN14. The Ninth Circuit has also indicated in dicta that "menus, and keystrokes" may be copyrightable. Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1477 (9th Cir.), cert. denied, BB Asset Management, Inc. v. Symantec Corp., 506 U.S. 869, 113 S.Ct. 198, 121 L.Ed.2d 141 (1992). In that case, however, the plaintiff did not show that the defendant had copied the plaintiff's menus or keystrokes, so the court was not directly faced with whether the menus or keystrokes constituted an unprotectable method of operation. Id.

III.

Conclusion

Because we hold that the Lotus menu command hierarchy is uncopyrightable subject matter, we further hold that Borland did not infringe Lotus's copyright by copying it. Accordingly, we need not consider any of Borland's affirmative defenses. The judgment of the district court is

Reversed.

BOUDIN, Circuit Judge, concurring.

The importance of this case, and a slightly different emphasis in my view of the underlying problem, prompt me to add a few words to the majority's tightly focused discussion.

I.

Most of the law of copyright and the "tools" of analysis have developed in the context of literary works such as novels, plays, and films. In this milieu, the principal problem--simply stated, if difficult to resolve--is to stimulate creative expression without unduly limiting access by others to the broader themes and concepts deployed by the author. The middle of the spectrum presents close cases; but a "mistake" in providing too much protection involves a small cost: subsequent authors treating the same themes must take a few more steps away from the original expression.

The problem presented by computer programs is fundamentally different in one respect. The computer program is a means for causing something to happen; it has a mechanical utility, an instrumental role, in accomplishing the world's work. Granting protection, in other words, can have some of the consequences of patent protection in limiting other people's ability to perform a task in the most efficient manner. Utility does not bar copyright (dictionaries may be copyrighted), but it alters the calculus.

Of course, the argument for protection is undiminished, perhaps even enhanced, by utility: if we want more of an intellectual product, a temporary monopoly for the creator provides incentives for others to create other, different items in this class. But the "cost" side of the equation may be different where one places a very high value on public access to a useful innovation that may be the most efficient means of performing a given task. Thus, the argument for extending protection may be the same; but the stakes on the other side are much higher.

It is no accident that patent protection has preconditions that copyright protection does not--notably, the requirements of novelty and non-obviousness-- and that patents are granted for a shorter period than copyrights. This problem of utility has sometimes manifested itself in copyright cases, such as Baker v. Selden, 101 U.S. 99, 25 L.Ed. 841 (1879), and been dealt with through various formulations that limit copyright or create limited rights to copy. But the case law and doctrine addressed to utility in copyright have been brief detours in the general march of copyright law.

Requests for the protection of computer menus present the concern with fencing off access to the commons in an acute form. A new menu may be a creative work, but over time its importance may come to reside more in the investment that has been made by users in learning the menu and in building their own mini- programs--macros--in reliance upon the menu. Better typewriter keyboard *820 layouts may exist, but the familiar QWERTY keyboard dominates the market because that is what everyone has learned to use. See P. David, CLIO and the Economics of QWERTY, 75 Am.Econ.Rev. 332 (1985). The QWERTY keyboard is nothing other than a menu of letters.

Thus, to assume that computer programs are just one more new means of expression, like a filmed play, may be quite wrong. The "form"--the written source code or the menu structure depicted on the screen--look hauntingly like the familiar stuff of copyright; but the "substance" probably has more to do with problems presented in patent law or, as already noted, in those rare cases where copyright law has confronted industrially useful expressions. Applying copyright law to computer programs is like assembling a jigsaw puzzle whose pieces do not quite fit.

All of this would make no difference if Congress had squarely confronted the issue, and given explicit directions as to what should be done. The Copyright Act of 1976 took a different course. While Congress said that computer programs might be subject to copyright protection, it said this in very general terms; and, especially in § 102(b), Congress adopted a string of exclusions that if taken literally might easily seem to exclude most computer programs from protection. The only detailed prescriptions for computers involve narrow issues (like back-up copies) of no relevance here.

Of course, one could still read the statute as a congressional command that the familiar doctrines of copyright law be taken and applied to computer programs, in cookie cutter fashion, as if the programs were novels or play scripts. Some of the cases involving computer programs embody this approach. It seems to be mistaken on two different grounds: the tradition of copyright law, and the likely intent of Congress.

The broad-brush conception of copyright protection, the time limits, and the formalities have long been prescribed by statute. But the heart of copyright doctrine--what may be protected and with what limitations and exceptions--has been developed by the courts through experience with individual cases. B. Kaplan, An Unhurried View of Copyright 40 (1967). Occasionally Congress addresses a problem in detail. For the most part the interstitial development of copyright through the courts is our tradition.

Nothing in the language or legislative history of the 1976 Act, or at least nothing brought to our attention, suggests that Congress meant the courts to abandon this case-by-case approach. Indeed, by setting up § 102(b) as a counterpoint theme, Congress has arguably recognized the tension and left it for the courts to resolve through the development of case law. And case law development is adaptive: it allows new problems to be solved with help of earlier doctrine, but it does not preclude new doctrines to meet new situations.

II.

In this case, the raw facts are mostly, if not entirely, undisputed. Although the inferences to be drawn may be more debatable, it is very hard to see that Borland has shown any interest in the Lotus menu except as a fall-back option for those users already committed to it by prior experience or in order to run their own macros using 1-2-3 commands. At least for the amateur, accessing the Lotus menu in the Borland Quattro or Quattro Pro program takes some effort.

Put differently, it is unlikely that users who value the Lotus menu for its own sake--independent of any investment they have made themselves in learning Lotus' commands or creating macros dependent upon them--would choose the Borland program in order to secure access to the Lotus menu. Borland's success is due primarily to other features. Its rationale for deploying the Lotus menu bears the ring of truth.

Now, any use of the Lotus menu by Borland is a commercial use and deprives Lotus of a portion of its "reward," in the sense that an infringement claim if allowed would increase Lotus' profits. But this is circular reasoning: broadly speaking, every limitation on copyright or privileged use diminishes the reward of the original creator. Yet not every writing is copyrightable or every use an infringement. The provision of reward is *821 one concern of copyright law, but it is not the only one. If it were, copyrights would be perpetual and there would be no exceptions.

The present case is an unattractive one for copyright protection of the menu. The menu commands (e.g., "print," "quit") are largely for standard procedures that Lotus did not invent and are common words that Lotus cannot monopolize. What is left is the particular combination and sub-grouping of commands in a pattern devised by Lotus. This arrangement may have a more appealing logic and ease of use than some other configurations; but there is a certain arbitrariness to many of the choices.

If Lotus is granted a monopoly on this pattern, users who have learned the command structure of Lotus 1-2-3 or devised their own macros are locked into Lotus, just as a typist who has learned the QWERTY keyboard would be the captive of anyone who had a monopoly on the production of such a keyboard. Apparently, for a period Lotus 1-2-3 has had such sway in the market that it has represented the de facto standard for electronic spreadsheet commands. So long as Lotus is the superior spreadsheet--either in quality or in price--there may be nothing wrong with this advantage.

But if a better spreadsheet comes along, it is hard to see why customers who have learned the Lotus menu and devised macros for it should remain captives of Lotus because of an investment in learning made by the users and not by Lotus. Lotus has already reaped a substantial reward for being first; assuming that the Borland program is now better, good reasons exist for freeing it to attract old Lotus customers: to enable the old customers to take advantage of a new advance, and to reward Borland in turn for making a better product. If Borland has not made a better product, then customers will remain with Lotus anyway.

Thus, for me the question is not whether Borland should prevail but on what basis. Various avenues might be traveled, but the main choices are between holding that the menu is not protectable by copyright and devising a new doctrine that Borland's use is privileged. No solution is perfect and no intermediate appellate court can make the final choice.

To call the menu a "method of operation" is, in the common use of those words, a defensible position. After all, the purpose of the menu is not to be admired as a work of literary or pictorial art. It is to transmit directions from the user to the computer, i.e., to operate the computer. The menu is also a "method" in the dictionary sense because it is a "planned way of doing something," an "order or system," and (aptly here) an "orderly or systematic arrangement, sequence or the like." Random House Webster's College Dictionary 853 (1991).

A different approach would be to say that Borland's use is privileged because, in the context already described, it is not seeking to appropriate the advances made by Lotus' menu; rather, having provided an arguably more attractive menu of its own, Borland is merely trying to give former Lotus users an option to exploit their own prior investment in learning or in macros. The difference is that such a privileged use approach would not automatically protect Borland if it had simply copied the Lotus menu (using different codes), contributed nothing of its own, and resold Lotus under the Borland label.

The closest analogue in conventional copyright is the fair use doctrine. E.g., Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985). Although invoked by Borland, it has largely been brushed aside in this case because the Supreme Court has said that it is "presumptively" unavailable where the use is a "commercial" one. See id. at 562, 105 S.Ct. at 2231-32. But see Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, ----, 114 S.Ct. 1164, 1174, 127 L.Ed.2d 500 (1994). In my view, this is something less than a definitive answer; "presumptively" does not mean "always" and, in any event, the doctrine of fair use was created by the courts and can be adapted to new purposes.

But a privileged use doctrine would certainly involve problems of its own. It might more closely tailor the limits on copyright protection to the reasons for limiting that protection; but it would entail a host of administrative problems that would cause *822 cost and delay, and would also reduce the ability of the industry to predict outcomes. Indeed, to the extent that Lotus' menu is an important standard in the industry, it might be argued that any use ought to be deemed privileged.

In sum, the majority's result persuades me and its formulation is as good, if not better, than any other that occurs to me now as within the reach of courts. Some solutions (e.g., a very short copyright period for menus) are not options at all for courts but might be for Congress. In all events, the choices are important ones of policy, not linguistics, and they should be made with the underlying considerations in view.

 


116 S.Ct. 804 (Mem)

133 L.Ed.2d 610, 64 USLW 4059, 96 Cal. Daily Op. Serv. 315

(Cite as: 516 U.S. 233, 116 S.Ct. 804)

LOTUS DEVELOPMENT CORPORATION, petitioner, v. BORLAND INTERNATIONAL, INC.

No. 94-2003.

Supreme Court of the United States

Jan. 16, 1996.

Rehearing Denied March 4, 1996.

On writ of certiorari to the United States Court of Appeals for the First Circuit.

PER CURIAM.

The judgment of the United States Court of Appeals for the First Circuit is affirmed by an equally divided Court.

Justice STEVENS took no part in the consideration or decision of this case.

 Subject Matter -- Fixation -- Copyright and Competition

991 F.2d 511

61 USLW 2633,

1993 Copr.L.Dec. P 27,096,

26 U.S.P.Q.2d 1458

(Cite as: 991 F.2d 511) 

MAI SYSTEMS CORPORATION, a Delaware corporation, Plaintiff-Appellee,

v.

PEAK COMPUTER, INC., a California corporation; Vincent Chiechi, an

individual; Eric Francis, an individual, Defendants-Appellants.

Nos. 92-55363, 93-55106.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted June 4, 1992 in No. 92-55363.

 The panel unanimously finds this case suitable for decision without oral argument. Fed.R.App.P. 34(a); Ninth Circuit Rule 34-4.

Decided April 7, 1993.

Appeal from the United States District Court for the Central District of California.

BEFORE: PREGERSON, BRUNETTI, and FERNANDEZ, Circuit Judges.

BRUNETTI, Circuit Judge:

Peak Computer, Inc. and two of its employees appeal the district court's order issuing a preliminary injunction pending trial as well as the district court's order issuing a permanent injunction following the grant of partial summary judgment.

I. FACTS

MAI Systems Corp., until recently, manufactured computers and designed software to run those computers. The company continues to service its computers and the software necessary to operate the computers. MAI software includes operating system software, which is necessary to run any other program on the computer.

Peak Computer, Inc. is a company organized in 1990 that maintains computer systems for its clients. Peak maintains MAI computers for more than one hundred clients in Southern California. This accounts for between fifty and seventy percent of Peak's business.

Peak's service of MAI computers includes routine maintenance and emergency repairs. Malfunctions often are related to the failure of circuit boards inside the computers, and it may be necessary for a Peak technician to operate the computer and its operating system software in order to service the machine.

In August, 1991, Eric Francis left his job as customer service manager at MAI and joined Peak. Three other MAI employees joined Peak a short time later. Some businesses that had been using MAI to service their computers switched to Peak after learning of Francis's move.

II. PROCEDURAL HISTORY

On March 17, 1992, MAI filed suit in the district court against Peak, Peak's president Vincent Chiechi, and Francis. The complaint includes counts alleging copyright infringement, misappropriation of trade secrets, trademark infringement, false advertising, and unfair competition.

MAI asked the district court for a temporary restraining order and preliminary injunction pending the outcome of the suit. The district court issued a temporary restraining order on March 18, 1992 and converted it to a preliminary injunction on March 26, 1992. On April 15, 1992, the district court issued a written version of the preliminary injunction along with findings of fact and conclusions of law.

The preliminary injunction reads as follows:

A. Defendants [and certain others] are hereby immediately restrained and enjoined pending trial of this action from:

1. infringing MAI's copyrights in any manner and from using, publishing, copying, selling, distributing or otherwise disposing *514 of any copies or portions of copies of the following MAI copyrighted computer program packages: "MPx," "SPx," "GPx40," and "GPx70" (collectively hereinafter, "The Software");

2. misappropriating, using in any manner in their business including advertising connected therewith, and/or disclosing to others MAI's trade secrets and confidential information, including, without limitation, The Software, MAI's Field Information Bulletins ("FIB") and Customer Database;

3. maintaining any MAI computer system, wherein:

(a) "maintaining" is defined as the engaging in any act, including, without limitation, service, repair, or upkeep in any manner whatsoever, that involves as part of such act, or as a preliminary or subsequent step to such act, the use, directly or indirectly, of The Software, including, without limitation, MAI's operating system, diagnostic, utility, or other software;

(b) "use" is defined as including, without limitation, the acts of running, loading, or causing to be run or loaded, any MAI software from any magnetic storage or read-only-memory device into the computer memory of the central processing unit of the computer system; and

(c) "computer system" is defined as an MAI central processing unit in combination with either a video display, printer, disk drives, and/or keyboard;

4. soliciting any MAI computer maintenance customer pursuant to Francis' employment contracts with MAI;

5. maintaining any contract where customer information was obtained by Francis while employed by MAI pursuant to Francis' employment contract with MAI;

6. using in any manner in their business, or in advertising connected therewith, directly or indirectly, the trademarks MAI, BASIC FOUR, and/or MAI Basic Four, the letters MAI (collectively, the "MAI Trademarks") or any mark, word, or name similar to or in combination with MAI's marks that are likely to cause confusion, mistake or to deceive;

7. committing any act which otherwise infringes any of the MAI Trademarks;

8. advertising, directly or indirectly, that MAI Basic Four is part of Peak's Product line, that Peak has "satellite facilities," and/or that Peak's technicians are "specifically trained on the latest hardware releases of MAI;" and

9. engaging in any other acts that amount to unfair competition with MAI.

B. IT IS FURTHER ORDERED that Defendants [and certain others] shall hereby, pending trial in this action:

1. provide a full accounting of all MAI property, including all copyrighted works presently in their possession; and

2. retain any fees paid to them by any MAI maintenance client and place any such fees in an interest bearing escrow account pending final determination of the action at trial or further order of this Court.

We stayed the preliminary injunction in part by an order of June 9, 1992 which provides:

The preliminary injunction issued by the district court on April 15, 1992 is stayed to the following extent:

Section (A)(1), enjoining defendants from "infringing MAI's copyrights in any manner and from using, publishing, copying, selling, distributing, or otherwise disposing of any copies or portions of copies" or certain MAI software, is stayed to the extent that it prohibits defendants from operating MAI computers in order to maintain them.

Section A(2), enjoining defendants from misappropriating MAI trade secrets, is stayed to the extent that it prohibits defendants from operating MAI computers in order to maintain them.

Section A(3), enjoining defendants from "maintaining any MAI computer system," is stayed in its entirety, including subsections (a), (b), and (c).

Section (B), ordering defendants to "provide a full accounting of all MAI property" and to retain fees paid to them *515 by "any MAI maintenance client" in an escrow account, is stayed in its entirety, including subsections (1) and (2).

The remainder of the district court's preliminary injunction shall remain in effect. This order shall remain in effect pending further order of this court.

In January, 1993, we denied a motion by Peak to stay the district court proceedings. The district court then heard a motion for partial summary judgment on some of the same issues raised in the preliminary injunction. The district court granted partial summary judgment for MAI and entered a permanent injunction on the issues of copyright infringement and misappropriation of trade secrets on February 2, 1993 which provides:

A. Defendants [and certain others] are hereby permanently enjoined as follows:

1. Peak [and certain others] are permanently enjoined from copying, disseminating, selling, publishing, distributing, loaning, or otherwise infringing MAI's copyrighted works, or any derivatives thereof, including those works for which registrations have issued, and works for which registrations may issue in the future. The "copying" enjoined herein specifically includes the acts of loading, or causing to be loaded, directly or indirectly, any MAI software from any magnetic storage or read only memory device into the electronic random access memory of the central processing unit of a computer system. As used herein, "computer system" means an MAI central processing unit in combination with either a video display, printer, disk drives, and/or keyboard.

2. (a) Peak and Francis [and certain others] are permanently enjoined from misappropriating, using in any manner in their business, including advertising connected therewith, and/or disclosing to others MAI's trade secrets, as that term is used in California Civil Code § 3426.1(d). MAI's trade secrets, for purposes of this injunction, shall include, but not be limited to the following: MAI's software, MAI's Field Information Bulletins ("FIB") and all information in such FIB's, and MAI Customer Database and all information in such Database.

(b) In particular, the persons identified in subparagraph (a) herein are permanently enjoined from soliciting any MAI computer maintenance customer and from maintaining any contract with any former MAI computer maintenance customer where knowledge of any such customers was obtained by Francis during his employment with MAI.....

III. JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction over interlocutory orders granting injunctions under 28 U.S.C. § 1292(a)(1).

In addition, an appeal under 28 U.S.C. § 1292(a)(1) brings before the court the entire order, and, in the interests of judicial economy the court may decide the merits of the case. The court, however, generally will chose to decide only those matters 'inextricably bound up with' the injunctive relief.

Bernard v. Air Line Pilots Ass'n, Int'l, AFL-CIO, 873 F.2d 213, 215 (9th Cir.1989) (citations omitted).

In this case, the district court's grant of the permanent injunction is "inextricably bound up" with the underlying decisions of that court on the merits of the copyright and trade secrets claims. Therefore, our review of the propriety of the permanent injunction is inextricably tied to the underlying decision, and this court has jurisdiction to review the entire order. Id.

****

IV. COPYRIGHT INFRINGEMENT

The district court granted summary judgment in favor of MAI on its claims of copyright infringement and issued a permanent injunction against Peak on these claims. The alleged copyright violations include: (1) Peak's running of MAI software licenced to Peak customers; (2) Peak's use of unlicensed software at its headquarters; and, (3) Peak's loaning of MAI computers and software to its customers. Each of these alleged violations must be considered separately.

A. Peak's running of MAI software licenced to Peak customers

[1] To prevail on a claim of copyright infringement, a plaintiff must prove ownership of a copyright and a " 'copying' of protectable expression" beyond the scope of a license. S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1085 (9th Cir.1989).

MAI software licenses allow MAI customers to use the software for their own internal information processing. [FN3] This allowed use necessarily includes the loading of the software into the computer's random access memory ("RAM") by a MAI customer. However, MAI software licenses do not allow for the use or copying of MAI software by third parties such as Peak. Therefore, any "copying" done by Peak is "beyond the scope" of the license.

FN3. A representative MAI software license provides in part:

4. Software License.

(a) License.... Customer may use the Software (one version with maximum of two copies permitted--a working and a backup copy) ... solely to fulfill Customer's own internal information processing needs on the particular items of Equipment ... for which the Software is configured and furnished by [MAI]. The provisions of this License ... shall apply to all versions and copies of the Software furnished to Customer pursuant to this Agreement. The term "Software" includes, without limitation, all basic operating system software....

(b) Customer Prohibited Acts.... Any possession or use of the Software ... not expressly authorized under this License or any act which might jeopardize [MAI]'s rights or interests in the Software ... is prohibited, including without limitation, examination, disclosure, copying, modification, reconfiguration, augmentation, adaptation, emulation, visual display or reduction to visually perceptible form or tampering....

(c) Customer Obligations. Customer acknowledges that the Software is [MAI]'s valuable and exclusive property, trade secret and copyrighted material. Accordingly, Customer shall ... (i) use the Software ... strictly as prescribed under this License, (ii) keep the Software ... confidential and not make [it] available to others....

A representative diagnostic license agreement provides in part:

6. Access/Non-Disclosure.

Licensee shall not give access nor shall it disclose the Diagnostics (in any form) ... to any person ... without the written permission of [MAI]. Licensee may authorize not more than three (3) of its bona fide employees to utilize the Diagnostics ... if, and only if, they agree to be bound by the terms hereof.

It is not disputed that MAI owns the copyright to the software at issue here, however, Peak vigorously disputes the district court's conclusion that a "copying" occurred under the Copyright Act.

The Copyright Act defines "copies" as:

material objects, other than phonorecords, in which a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.

17 U.S.C. § 101.

The Copyright Act then explains:

A work is "fixed" in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated *518 for a period of more than transitory duration.

17 U.S.C. § 101.

[2] The district court's grant of summary judgment on MAI's claims of copyright infringement reflects its conclusion that a "copying" for purposes of copyright law occurs when a computer program is transferred from a permanent storage device to a computer's RAM. This conclusion is consistent with its finding, in granting the preliminary injunction, that: "the loading of copyrighted computer software from a storage medium (hard disk, floppy disk, or read only memory) into the memory of a central processing unit ("CPU") causes a copy to be made. In the absence of ownership of the copyright or express permission by license, such acts constitute copyright infringement." We find that this conclusion is supported by the record and by the law.

Peak concedes that in maintaining its customer's computers, it uses MAI operating software "to the extent that the repair and maintenance process necessarily involves turning on the computer to make sure it is functional and thereby running the operating system." It is also uncontroverted that when the computer is turned on the operating system is loaded into the computer's RAM. As part of diagnosing a computer problem at the customer site, the Peak technician runs the computer's operating system software, allowing the technician to view the systems error log, which is part of the operating system, thereby enabling the technician to diagnose the problem. [FN4]

FN4. MAI also alleges that Peak runs its diagnostic software in servicing MAI computers. Since Peak's running of the operating software constitutes copyright violation, it is not necessary for us to directly reach the issue of whether Peak also runs MAI's diagnostic software. However, we must note that Peak's field service manager, Charles Weiner, admits that MAI diagnostic software is built into the MAI MPx system and, further, that if Peak loads the MAI diagnostic software from whatever source into the computer's RAM, that such loading will produce the same copyright violation as loading the operating software.

[3] Peak argues that this loading of copyrighted software does not constitute a copyright violation because the "copy" created in RAM is not "fixed." However, by showing that Peak loads the software into the RAM and is then able to view the system error log and diagnose the problem with the computer, MAI has adequately shown that the representation created in the RAM is "sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration."

After reviewing the record, we find no specific facts (and Peak points to none) which indicate that the copy created in the RAM is not fixed. While Peak argues this issue in its pleadings, mere argument does not establish a genuine issue of material fact to defeat summary judgment. A party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials in pleadings, but "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.Proc. 56(e); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Harper v. Wallingford, 877 F.2d 728 (9th Cir.1989).

The law also supports the conclusion that Peak's loading of copyrighted software into RAM creates a "copy" of that software in violation of the Copyright Act. In Apple Computer, Inc. v. Formula Int'l, Inc., 594 F.Supp. 617, 621 (C.D.Cal.1984), the district court held that the copying of copyrighted software onto silicon chips and subsequent sale of those chips is not protected by § 117 of the Copyright Act. Section 117 allows "the 'owner' [FN5] of a copy of a computer program to make or authorize the making of another copy" without infringing copyright law, if it "is an essential step in the utilization of the computer program" or if the new copy is "for archival purposes *519 only." 17 U.S.C. § 117 (Supp.1988). [FN6] One of the grounds for finding that § 117 did not apply was the court's conclusion that the permanent copying of the software onto the silicon chips was not an "essential step" in the utilization of the software because the software could be used through RAM without making a permanent copy. The court stated:

FN5. Since MAI licensed its software, the Peak customers do not qualify as "owners" of the software and are not eligible for protection under § 117.

FN6. The current § 117 was enacted by Congress in 1980, as part of the Computer Software Copyright Act. This Act adopted the recommendations contained in the Final Report of the National Commission on New Technological Uses of Copyrighted Works ("CONTU") (1978). H.R.Rep. No. 1307, 96th Cong., 2d Sess., pt. 1, at 23. The CONTU was established by Congress in 1974 to perform research and make recommendations concerning copyright protection for computer programs. The new § 117 reflects the CONTU's conclusion that: "Because the placement of a work into a computer is the preparation of a copy, the law should provide that persons in rightful possession of copies of programs be able to use them freely without fear of exposure to copyright liability." Final Report at 13.

RAM can be simply defined as a computer component in which data and computer programs can be temporarily recorded. Thus, the purchaser of [software] desiring to utilize all of the programs on the diskette could arrange to copy [the software] into RAM. This would only be a temporary fixation. It is a property of RAM that when the computer is turned off, the copy of the program recorded in RAM is lost.

Apple Computer at 622.

While we recognize that this language is not dispositive, it supports the view that the copy made in RAM is "fixed" and qualifies as a copy under the Copyright Act.

We have found no case which specifically holds that the copying of software into RAM creates a "copy" under the Copyright Act. However, it is generally accepted that the loading of software into a computer constitutes the creation of a copy under the Copyright Act. See e.g. Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 260 (5th Cir.1988) ("the act of loading a program from a medium of storage into a computer's memory creates a copy of the program"); 2 Nimmer on Copyright, § 8.08 at 8-105 (1983) ("Inputting a computer program entails the preparation of a copy."); Final Report of the National Commission on the New Technological Uses of Copyrighted Works, at 13 (1978) ("the placement of a work into a computer is the preparation of a copy"). We recognize that these authorities are somewhat troubling since they do not specify that a copy is created regardless of whether the software is loaded into the RAM, the hard disk or the read only memory ("ROM"). However, since we find that the copy created in the RAM can be "perceived, reproduced, or otherwise communicated," we hold that the loading of software into the RAM creates a copy under the Copyright Act. 17 U.S.C. § 101. We affirm the district court's grant of summary judgment as well as the permanent injunction as it relates to this issue.

B. Use of unlicensed software at headquarters

[4] It is not disputed that Peak has several MAI computers with MAI operating software "up and running" at its headquarters. It is also not disputed that Peak only has a license to use MAI software to operate one system. As discussed above, we find that the loading of MAI's operating software into RAM, which occurs when an MAI system is turned on, constitutes a copyright violation. We affirm the district court's grant of summary judgment in favor of MAI on its claim that Peak violated its copyright through the unlicensed use of MAI software at Peak headquarters, and also affirm the permanent injunction as it relates to this issue.

C. Loaning of MAI computers and software

[5] MAI contends that Peak violated the Copyright Act by loaning MAI computers and software to its customers. Among the exclusive rights given to the owner of a copyrighted work is the right to distribute copies of the work by lending. 17 U.S.C. § 106(3). Therefore, Peak's loaning of MAI software, if established, would constitute a violation of the Copyright Act.

*520 [6] MAI argues that it is clear that Peak loaned out MAI computers because Peak advertisements describe the availability of loaner computers for its customers and Chiechi admitted that the available loaners included MAI computers. However, there was no evidence that a MAI computer was ever actually loaned to a Peak customer. Paul Boulanger, a Senior Field Engineer at Peak, testified in his deposition that he was not aware of any MAI systems being loaned to Peak customers or of any customer asking for one. Charles Weiner, a Field Service Manager at Peak, testified in his deposition that he did not have any knowledge of MAI systems being loaned to customers. Weighing this evidence in the light most favorable to Peak, whether Peak actually loaned out any MAI system remains a genuine issue of material fact.

[7][8] As a general rule, a permanent injunction will be granted when liability has been established and there is a threat of continuing violations. See, National Football League v. McBee & Bruno's, Inc., 792 F.2d 726, 732 (8th Cir.1986); 3 Nimmer on Copyright § 14.06[B] at 14-88. However § 502(a) of the Copyright Act authorizes the court to "grant temporary and final injunctions on such terms as it may deem reasonable to prevent or restrain infringement of a copyright." 17 U.S.C. § 502(a) (emphasis added). While there has been no showing that Peak has actually loaned out any MAI software, the threat of a violation is clear as Peak has MAI computers in its loaner inventory. The permanent injunction is upheld as it relates to this issue.

V. MISAPPROPRIATION OF TRADE SECRETS

[9] The district court granted summary judgment in favor of MAI on its misappropriation of trade secrets claims and issued a permanent injunction against Peak on these claims. The permanent injunction prohibits Peak from "misappropriating, using in any manner in their business, including advertising connected therewith, and/or disclosing to others MAI's trade secrets," including: (1) MAI Customer Database; (2) MAI Field Information Bulletins ("FIB"); and, (3) MAI software.

Peak argues that since MAI's motion for summary judgment only included argument regarding the customer database as a trade secret that the grant of summary judgment on the FIBs and software was overbroad. However, in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986), the Supreme Court held that "so long as the losing party was on notice that she had to come forward with all of her evidence," summary judgment can properly be entered. Id. at 326, 106 S.Ct. at 2554. Although Celotex dealt with the court's authority to grant summary judgment sua sponte, its notice analysis is applicable to any summary judgment motion.

MAI argues that Peak had adequate notice because, while MAI only presented argument regarding the customer database, it moved for summary judgment on its claims of misappropriation of trade secrets generally, and, because MAI's Statement of Uncontroverted Facts included statements that the FIBs and software were trade secrets. We agree. However, we do not agree with MAI's contention that Peak has waived its right to appeal summary judgment on these issues by failing address the merits in the district court. Therefore, we reach the merits of the grant of summary judgment on each trade secret claim.

A. Customer Database

California has adopted the Uniform Trade Secrets Act ("UTSA") which codifies the basic principles of common law trade secret protection. Cal.Civ.Code §§ 3426-3426.10 (West Supp.1993). To establish a violation under the UTSA, it must be shown that a defendant has been unjustly enriched by the improper appropriation, use or disclosure of a "trade secret."

Peak argues both that the MAI Customer Database is not a "trade secret," and that even if it is a trade secret, that Peak did not "misappropriate" it.

The UTSA defines a "trade secret" as:

*521 information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and

(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Cal.Civ.Code § 3426.1(d) (West Supp.1993).

MAI contends its Customer Database is a valuable collection of data assembled over many years that allows MAI to tailor its service contracts and pricing to the unique needs of its customers and constitutes a trade secret.

[10][11] We agree that the Customer Database qualifies as a trade secret. The Customer Database has potential economic value because it allows a competitor like Peak to direct its sales efforts to those potential customers that are already using the MAI computer system. Further, MAI took reasonable steps to insure the secrecy to this information as required by the UTSA. MAI required its employees to sign confidentiality agreements respecting its trade secrets, including the Customer Database. Thus, under the UTSA, the MAI Customer Database constitutes a trade secret.

We also agree with MAI that the record before the district court on summary judgment establishes that Peak misappropriated the Customer Database.

"Misappropriation" is defined under the UTSA as:

(1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; [FN7] or

FN7. The UTSA defines "improper means," as "theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means." Cal.Civ.Code § 3426.1(a) (West Supp.1993).

(2) Disclosure or use of a trade secret of another without express or implied consent by a person who:

(A) Used improper means to acquire knowledge of the trade secret; or

(B) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was: (i) Derived from or through a person who had utilized improper means to acquire it; (ii) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (iii) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or

(C) Before a material change of his or her position knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or by mistake.

Cal.Civ.Code § 3426.1(b) (West Supp.1993).

Peak contends that Francis never physically took any portion of MAI's customer database and that neither Francis nor anyone under his direction put information he had obtained from working at MAI in the Peak database. However, to find misappropriation under the UTSA, this need not be established.

[12] The UTSA definition of "misappropriation" has been clarified by case law which establishes that the right to announce a new affiliation, even to trade secret clients of a former employer, is basic to an individual's right to engage in fair competition, and that the common law right to compete fairly and the right to announce a new business affiliation have survived the enactment of the UTSA. American Credit Indem. Co. v. Sacks, 213 Cal.App.3d 622, 262 Cal.Rptr. 92, 99-100 (Cal.Ct.App.1989). However, misappropriation occurs if information from a customer database is used to solicit customers. Id.

[13] Merely informing a former employer's customers of a change of employment, without more, is not solicitation. Id. 262 Cal.Rptr. at 99 (citing Aetna Bldg. Maintenance Co. v. West, 39 Cal.2d 198, 246 P.2d 11 (1952)). However, in this case, Francis did more than merely announce his new affiliation with Peak. When Francis began *522 working for Peak, he called MAI customers whose names he recognized. Additionally, Francis personally went to visit some of these MAI customers with proposals to try and get them to switch over to Peak. These actions constituted solicitation and misappropriation under the UTSA definition. We affirm the district court's grant of summary judgment in favor of MAI on its claim that Peak misappropriated its Customer Database and affirm the permanent injunction as it relates to this issue.

B. Field Information Bulletins

MAI argues summary judgment was properly granted on its claim of misappropriation of the FIBs because the FIBs are a valuable trade secret of MAI and the evidence showed that the FIBs were being used by Peak to operate a business competing unfairly with MAI.

[14] We agree that the FIBs constitute trade secrets. It is uncontroverted that they contain technical data developed by MAI to aid in the repair and servicing of MAI computers, and that MAI has taken reasonable steps to insure that the FIBs are not generally known to the public.

[15] However, whether Peak has misappropriated the FIBs remains a genuine issue of material fact. The only evidence introduced by MAI to establish Peak's use of the FIBs is Peak's advertisements claiming that "Peak's system specialists are specifically trained on the latest hardware releases on MAI Basic Four." MAI asserts that if Peak did not use FIBs that this claim would have to be false. However, Weiner and Boulanger testified in their depositions that they had never seen a FIB at Peak. Similarly, Boulanger, Robert Pratt and Michael McIntosh [FN8] each testified that they did not have any FIB information when they left MAI. Weighing this evidence in the light most favorable to Peak, whether Peak used any of the FIBs remains a genuine issue of material fact, and the district court's grant of summary judgment on this claim of trade secret misappropriation is reversed and the permanent injunction is vacated as it relates to this issue.

FN8. Pratt and Boulanger are both computer technicians who left MAI to work at Peak.

C. Software

MAI contends the district court properly granted summary judgment on its claim of misappropriation of software because its software constitutes valuable unpublished works that allow its machines to be maintained. MAI argues that Peak misappropriated the software by loading it into the RAM.

[16] We recognize that computer software can qualify for trade secret protection under the UTSA. See e.g., S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1089-90 (9th Cir.1989). However, a plaintiff who seeks relief for misappropriation of trade secrets must identify the trade secrets and carry the burden of showing that they exist. Diodes, Inc. v. Franzen, 260 Cal.App.2d 244, 67 Cal.Rptr. 19, 22-24 (1968); see also Universal Analytics Inc. v. MacNeal-Schwendler Corp., 707 F.Supp. 1170, 1177 (C.D.Cal.1989) (plaintiff failed to inform defendant or the court "precisely which trade secret it alleges was misappropriated"), aff'd, 914 F.2d 1256 (9th Cir.1990).

Here, while MAI asserts that it has trade secrets in its diagnostic software and operating system, and that its licensing agreements constitute reasonable efforts to maintain their secrecy, MAI does not specifically identify these trade secrets. In his Declaration, Joseph Perez, a Customer Service Manager at MAI, stated that the diagnostic software "contain valuable trade secrets of MAI," however, the Declaration does not specify what these trade secrets are. Additionally, we find no declaration or deposition testimony which specifically identifies any trade secrets. Since the trade secrets are not specifically identified, we cannot determine whether Peak has misappropriated any trade secrets by running the MAI operating software and/or diagnostic software in maintaining MAI systems for its customers, and we reverse the district court's grant of summary judgment in favor of MAI on its claim that *523 Peak misappropriated trade secrets in its computer software and vacate the permanent injunction as it relates to this issue.

VI. BREACH OF CONTRACT

The district court granted summary judgment in favor of MAI on its breach of contract claim against Eric Francis. It is clear from the depositions of Francis and Chiechi that Francis solicited customers and employees of MAI in breach of his employment contract with MAI, and we affirm the district court's grant of summary judgment on this issue and affirm the permanent injunction as it relates to this claim.

VII. PRELIMINARY INJUNCTION

A. Trademark Infringement

In granting the preliminary injunction, the district court found that Peak advertisements that "MAI Basic Four" computers are part of "Peak's Product Line" imply that Peak is a MAI dealer for new computers and constitute trademark infringement. The district court also found that: "Such acts are likely to cause confusion, mistake or deception in that potential purchasers of MAI computers and/or maintenance services will be led to believe that Peak's activities are associated with or sanctioned or approved by MAI."

Peak claims that the district court erred in granting the preliminary injunction because it did not apply the legal tests established by the Ninth Circuit to evaluate whether a likelihood of confusion existed. See e.g., J.B. Williams Co. v. Le Conte Cosmetics, Inc., 523 F.2d 187, 191 (9th Cir.1975) (five factor test to determine likelihood of confusion) cert. denied, 424 U.S. 913, 96 S.Ct. 1110, 47 L.Ed.2d 317 (1976); AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir.1979) (eight factor test). However, the district court was not required to consider all these factors. As we recognized in Apple Computer, Inc. v. Formula Int'l, Inc., 725 F.2d 521 (9th Cir.1984):

[I]n granting a preliminary injunction, the parties will not have had a full opportunity to either develop or present their cases and the district court will have had only a brief opportunity to consider the different factors relative to the likelihood of confusion determination.... The appropriate time for giving full consideration to [these factors] is when the merits of the case are tried.

Id. at 526 (citations and quotations omitted).

Peak has not shown how the district court clearly erred in its preliminary trademark conclusions. Accordingly, the district court did not abuse its discretion and this portion of the preliminary injunction is upheld.

B. False Advertising

[17] In granting the preliminary injunction, the district court found that "Peak's advertising ... falsely misleads the public as to Peak's capability of servicing and maintaining MAI computer systems." The injunction prohibits Peak from "advertising, directly or indirectly, that MAI Basic Four is part of Peak's Product line, that Peak has 'satellite facilities,' and/or that Peak's technicians are 'specifically trained on the latest hardware releases of MAI.' "

Peak argues that these representations in its ads are not false. However, the district court's findings are supported by the record. Depositions show that Peak is not an authorized MAI dealer, that its technicians receive no ongoing training and that its "satellite facilities" are actually storage sheds. Perhaps the storage sheds could be legitimately characterized as satellite facilities, but the district court's conclusion otherwise was not clearly erroneous. Accordingly, the district court did not abuse its discretion and this portion of the preliminary injunction is upheld.

VIII. CONCLUSION

The following sections of the preliminary injunction issued by the district court on April 15, 1992 have been mooted by that court's issuing of a permanent injunction:

Section (A)(1), enjoining defendants from infringing MAI's copyrights; Section (A)(2) enjoining defendants from misappropriating *524 MAI trade secrets; Section (A)(3) enjoining defendants from maintaining MAI computers; Section (A)(4) enjoining defendants from soliciting customers; and, Section (A)(5) enjoining defendants from maintaining certain customer contracts.

The remainder of the district court's preliminary injunction shall remain in effect pending the district court's final judgment. Earlier orders of this court temporarily staying portions of the injunction are vacated.

The permanent injunction issued by the district court on February 2, 1993, is vacated to the following extent:

Section (A)(2)(a), enjoining defendants from "misappropriating ... MAI's trade secrets" is vacated as it relates to MAI's software and MAI's Field Information Bulletins.

The remainder of the permanent injunction shall remain in effect. Earlier orders of this court temporarily staying portions of the injunction are vacated.

The district court's grant of summary judgment is AFFIRMED in part and REVERSED in part. This case is REMANDED for proceedings consistent with this opinion.


"Leveraging Monopoly" -- Intellectual Property and the Structure of Competition

125 F.3d 1195

1997-2 Trade Cases  P 71,908,

44 U.S.P.Q.2d 1065,

97 Cal. Daily Op. Serv. 7197

(Cite as: 125 F.3d 1195)

IMAGE TECHNICAL SERVICES, INC.; ** Plaintiffs-Appellees,

v. 

EASTMAN KODAK CO., Defendant-Appellant.

Nos. 96-15293, 96-15296.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Sept. 19, 1996.

Decided Aug. 26, 1997.

Appeal from the United States District Court for the Northern District of California; A. Wallace Tashima, District Judge, Presiding. D.C. No. CV-87- 01686-AWT.

Before: BEEZER and THOMPSON, Circuit Judges, GILLMOR, District Judge. [FN*]

FN* The Honorable Helen W. Gillmor, United States District Judge for the District of Hawaii, sitting by designation.

Opinion by Judge BEEZER; Partial Concurrence and Partial Dissent by Judge GILLMOR.

BEEZER, Circuit Judge:

Plaintiffs-Appellees Image Technical Services, and ten other independent service organizations ("ISOs") that service Kodak photocopiers and micrographic equipment sued the Eastman Kodak Co. ("Kodak") for violations of the Sherman Act. The ISOs alleged that Kodak used its monopoly in the market for Kodak photocopier and micrographic parts to create a second monopoly in the equipment service markets. A jury verdict awarded treble damages totaling $71.8 million. The district court denied Kodak's post trial motions and entered a ten year permanent injunction requiring Kodak to sell "all parts" to ISOs. Kodak filed a timely appeal, challenging the jury's verdict, the ISOs' evidence, the jury instructions, the damage awards and the permanent injunction. Kodak also seeks reversal on the basis of an alleged biased juror.

This appeal raises questions relating to the application of antitrust principles upon a finding that a monopolist unilaterally refused to deal with competitors. We also address overlapping patent and copyright issues and their significance in the antitrust context.

We have jurisdiction pursuant to 28 U.S.C § 1291 and we affirm in part, reverse in part and remand with instructions to amend the injunction.

I

Kodak manufactures, sells and services high volume photocopiers and micrographic (or microfilm) equipment. Competition in these markets is strong. In the photocopier market Kodak's competitors include Xerox, IBM and Canon. Kodak's competitors in the micrographics market include Minolta, Bell & Howell and 3M. Despite comparable products in these markets, Kodak's equipment is distinctive. Although Kodak equipment may perform similar functions to that of its competitors, Kodak's parts are not interchangeable with parts used in other manufacturers' equipment.

Kodak sells and installs replacement parts for its equipment. Kodak competes with ISOs in these markets. Kodak has ready access to all parts necessary for repair services because it manufactures many of the parts used in its equipment and purchases the remaining necessary parts from independent original-equipment manufacturers. In *1201 the service market, Kodak repairs at least 80% of the machines it manufactures. ISOs began servicing Kodak equipment in the early 1980's, and have provided cheaper and better service at times, according to some customers. ISOs obtain parts for repair service from a variety of sources, including, at one time, Kodak.

As ISOs grew more competitive, Kodak began restricting access to its photocopier and micrographic parts. In 1985, Kodak stopped selling copier parts to ISOs, and in 1986, Kodak halted sales of micrographic parts to ISOs. Additionally, Kodak secured agreements from their contracted original-equipment manufacturers not to sell parts to ISOs. These parts restrictions limited the ISOs' ability to compete in the service market for Kodak machines. Competition in the service market requires that service providers have ready access to all parts.

Kodak offers annual or multi-year service contracts to its customers. Service providers generally contract with equipment owners through multi-year service contracts. ISOs claim that they were unable to provide similar contracts because they lack a reliable supply of parts. Some ISOs contend that the parts shortage forced them out of business.

In 1987, the ISOs filed this action against Kodak, seeking damages and injunctive relief for violations of the Sherman Act. The ISOs claimed that Kodak both: (1) unlawfully tied the sale of service for Kodak machines with the sale of parts in violation of § 1 of the Sherman Act, and (2) monopolized or attempted to monopolize the sale of service for Kodak machines in violation of § 2 of the Sherman Act.

Kodak moved for summary judgment prior to discovery. The district court allowed brief discovery and then granted summary judgment in Kodak's favor. Image Technical Serv., Inc. v. Eastman Kodak Co., 1988 WL 156332 (N.D.Cal.). We reversed. Image Technical Serv., Inc. v. Eastman Kodak Co., 903 F.2d 612 (9th Cir.1990).

Kodak appealed to the Supreme Court, which affirmed the denial of summary judgment. The Court held that the record disclosed sufficient factual disputes to survive summary judgment on both the § 1 and § 2 claims. Eastman Kodak Co. v. Image Technical Serv., Inc., 504 U.S. 451, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992). The Supreme Court also held that Kodak's lack of market power in the market for high volume photocopiers and micrographic equipment did not preclude, as a matter of law, the possibility of market power in the derivative aftermarkets for parts and service. Id. at 477, 112 S.Ct. at 2087. The Court recognized that resolution of other key issues required a more complete record. The Court concluded:

In the end, of course, Kodak's arguments may prove to be correct. It may be that its parts, service, and equipment are components of one unified market, or that the equipment market does discipline the aftermarkets so that all three are priced competitively overall, or that any anticompetitive effects of Kodak's behavior are outweighed by its competitive effects. But we cannot reach these conclusions as a matter of law on a record this sparse.

504 U.S. at 486, 112 S.Ct. at 2092.

After remand, the case proceeded to trial in the district court. Before closing arguments, the ISOs withdrew their § 1 tying and conspiracy claims. The remaining § 2 attempted monopolization and monopolization claims were submitted to the jury. A unanimous verdict awarded damages to the ISO's totaling $71.8 million after trebling. Ten ISOs were awarded damages covering lost service profits in the amount of $12,172,900 (before trebling) and six ISOs were awarded damages covering lost profits for used equipment sales totaling $11,775,400 (before trebling).

After accepting the verdict, the district court crafted a ten year injunction requiring Kodak to sell all parts to ISOs on "reasonable and nondiscriminatory terms and prices." The injunction required Kodak to sell: (1) all parts for Kodak equipment; (2) *1202 all parts described in Kodak's Parts Lists; (3) all parts of supply items that are field replaceable by Kodak technicians; (4) all service manuals and price lists; and (5) all tools or devices "essential to servicing Kodak equipment."

II

Section 2 of the Sherman Act prohibits monopolies, attempts to form monopolies, as well as combinations and conspiracies to do so. 15 U.S.C. § 2. [FN2] The ISOs presented evidence in support of two § 2 theories: attempted monopolization and monopolization. They alleged, and the jury concluded, that Kodak used its monopoly over Kodak photocopier and micrographic parts to attempt to create and actually create a second monopoly over the service markets.

FN2. Section 2 of the Sherman Act reads in relevant part: "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other persons, to monopolize any part of the trade or commerce ... [commits a felony]." 15 U.S.C. § 2.

[1][2][3] To prevail on a § 2 attempt claim, the ISOs were required to establish: "(1) a specific intent to control prices or destroy competition; (2) predatory or anticompetitive conduct directed at accomplishing that purpose; (3) a dangerous probability of achieving 'monopoly power,' and (4) causal antitrust injury." Rebel Oil Co., Inc. v. Atlantic Richfield, Co., 51 F.3d 1421, 1434 (9th Cir.) (citing McGlinchy v. Shell Chem. Co., 845 F.2d 802, 811 (9th Cir.1988)), cert. denied, --- U.S. ----, 116 S.Ct. 515, 133 L.Ed.2d 424 (1995). The requirements of a § 2 monopolization claim are similar, differing primarily in the requisite intent and the necessary level of monopoly power. See California Computer Products, Inc. v. International Business Machines Corp., 613 F.2d 727, 736-37 (9th Cir.1979). To prevail on a § 2 monopoly claim the ISOs were required to prove that Kodak: (1) possessed monopoly power in the relevant market and (2) willfully acquired or maintained that power. Kodak, 504 U.S. at 481, 112 S.Ct. at 2089-90 (citing United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1703-04, 16 L.Ed.2d 778 (1966)). Section 2 plaintiffs must also establish antitrust injury. See Cost Management Services, Inc. v. Washington Natural Gas Co., 99 F.3d 937, 949 (9th Cir.1996).

***

[6] To demonstrate market power by circumstantial evidence, a plaintiff must: "(1) define the relevant market, (2) show that the defendant owns a dominant share of that market, and (3) show that there are significant barriers to entry and show that existing competitors lack the capacity to increase their output in the short run." Id. at 1434 (citations omitted). We review these requirements in turn.

1.

[7] We begin with the relevant market determination. The relevant market is the field in which meaningful competition is said to exist. See United States v. Continental Can Co., 378 U.S. 441, 449, 84 S.Ct. 1738, 1743, 12 L.Ed.2d 953 (1964). Generally, the relevant market is defined in terms of product and geography. See Rebel Oil, 51 F.3d *1203at 1434; see, e.g., Oahu Gas Service, Inc. v. Pacific Resources, Inc., 838 F.2d 360, 364- 65 (9th Cir.1988) (all propane sales in Hawaii). In Rebel Oil Co., Inc. v. Atlantic Richfield Co., we defined "market" as the group of sellers or producers who have the "actual or potential ability to deprive each other of significant levels of business." 51 F.3d at 1434 (quoting Thurman Industries, Inc. v. Pay 'N Pak Stores, Inc., 875 F.2d 1369, 1374 (9th Cir.1989)). Without a proper definition of the relevant market, it is impossible to determine a party's influence over that market. Id. Ultimately what constitutes a relevant market is a factual determination for the jury. Id. at 1435.

[8] In Kodak, the Supreme Court noted two guiding principles pertinent to the relevant market definition here. First, the Court held that service and parts could constitute separate markets. Kodak, 504 U.S. at 462-63, 481-82, 112 S.Ct. at 2079-80, 2090. Second, the Supreme Court held that a single brand could constitute a separate market. Id. at 482, 112 S.Ct. at 2090. Thus, as to the market for Kodak parts, the ISOs proceeded on the theory that Kodak held monopolies over two relevant parts markets: the Kodak photocopier parts market and the Kodak micrographic parts market. Both markets, the ISOs argued, consisted of the entirety of necessary Kodak parts for that field of equipment.

[9] Kodak disagrees and argues that the district court erred in denying its renewed motion for judgment as a matter of law, because the ISOs' "all parts" market theory, upon which the jury relied to define the market, has no support in existing antitrust precedent. We review de novo the district court's denial of Kodak's renewed motion of judgment as a matter of law. Acosta v. City & County of San Francisco, 83 F.3d 1143, 1145 (9th Cir.), cert. denied, --- U.S. ----, 117 S.Ct. 514, 136 L.Ed.2d 403 (1996). We would be required to reverse the district court's denial of Kodak's motion if the evidence, construed in the light most favorable to the ISO's, permits only one reasonable conclusion, and that conclusion is contrary to that of the jury's. Id.

On appeal and in their renewed motion for judgment as a matter of law, Kodak proposes a segmented parts market. It argues that because no two parts are interchangeable, the relevant markets for parts consist of the market for each individual part for Kodak photocopiers and each single part for Kodak micrographics equipment. Under Kodak's theory there are not two relevant parts markets, but thousands of individual "part" markets. Kodak contends that the ISOs should have been required to demonstrate that they could not obtain particular nonpatented parts and that the failure to obtain that particular part resulted in a Kodak monopoly over service. We reject Kodak's market definition.

Kodak's market definition focuses exclusively on the interchangeability of the parts although ignoring the "commercial realities" faced by ISOs and end users. Kodak, 504 U.S. at 482, 112 S.Ct. at 2090. In Kodak, the Supreme Court reasoned that:

Because service and parts for Kodak equipment are not interchangeable with other manufacturers' service and parts, the relevant market from the Kodak equipment owner's perspective is composed of only those companies that service Kodak machines.

Id. The Court also recognized however, that the market definition here could "be determined only after a factual inquiry into the 'commercial realities' faced by consumers." Id. (citing Grinnell, 384 U.S. at 572, 86 S.Ct. at 1704). Consideration of the "commercial realities" in the markets for Kodak parts compels the use of an "all parts" market theory. The "commercial reality" faced by service providers and equipment owners is that a service provider must have ready access to all parts to compete in the service market. As the relevant market for service "from the Kodak equipment owner's perspective is composed of only those companies that service Kodak machines," id., the relevant market for parts from the equipment owners' and service providers' perspective is composed of "all parts" that are designed to meet Kodak photocopier and micrographics equipment specifications. The makers of these parts "if unified by a monopolist or a hypothetical cartel, would have market power in *1204 dealing with" ISOs and end users. Rebel Oil, 51 F.3d at 1436 (quoting Areeda & Hovenkamp, Antitrust Law, ¶ 518.1b, at 534 (Supp.1993)) (defining relevant "market").

Kodak argues that service providers' need for all parts is not pertinent to the relevant market determination. Kodak, citing In re British Oxygen Co., 86 F.T.C. 1241 (1975), rev'd on other grounds, BOC Intern., Ltd. v. F.T.C., 557 F.2d 24 (2nd Cir.1977), analogizes to the automotive supplies market, arguing that the fact that automobile owners need tires, oil and gasoline does not mean that these elements constitute a single relevant market. The market for Kodak parts is distinguishable. First, Kodak parts, unlike tires, oil or gasoline, are not interchangeable with parts for other brands or equipment: the market for Kodak parts is a highly limited and specialized one. Second, the commercial reality for auto parts consumers does not necessitate that a retailer of tires, for example, also sell either gasoline or oil, or both. In the market for Kodak parts, a ready supply of all parts is needed to satisfy service contracts. See, e.g., Grinnell, 384 U.S. at 572, 86 S.Ct. at 1704 ("Central station companies recognize that to compete effectively, they must offer all or nearly all types of service."). The ISOs argue that through its anticompetitive conduct Kodak has ensured that it will possess the only inventory of all parts for Kodak high volume photocopiers and micrographic equipment.

Kodak's argument that the Supreme Court did not squarely address the relevant market issue presented here is well taken. However, nothing in the Kodak opinion indicates that the Court envisaged any relevant market other than "all parts." The Court analyzed three markets for photocopiers and micrographic equipment: equipment, parts and service. The Court referred to Kodak's "parts monopoly," 504 U.S. at 483, 112 S.Ct. at 2091, not its "parts monopolies," and nothing in the opinion suggests that the Court labored under the misconception that all parts were interchangeable.

Other factors compel our acceptance of an "all parts" market. In Brown Shoe Co. v. United States, the Supreme Court teaches that the boundaries of a relevant market:

may be determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors.

370 U.S. 294, 325, 82 S.Ct. 1502, 1524, 8 L.Ed.2d 510 (1962) (defining "line of commerce" for the purposes of § 7 of the Clayton Act). [FN3] The Brown Shoe factors applied here, particularly the lack of consumer recognition of individual part markets, the unique and specialized nature of the equipment and the singular use of "all parts" to service Kodak equipment, weigh in favor of an "all parts" market. Kodak does not point to record evidence which supports a contrary conclusion.

***

2.

[10] Next we turn to the second monopoly power element: market share. A plaintiff relying on circumstantial evidence to establish a § 2 monopolization claim must show that the defendant owned a "dominant share" of the market. Rebel Oil, 51 F.3d at 1434. Calculation of the market share allows for a proper understanding of the defendant's influence and relative power in the relevant market. A dominant share of the market often carries with it the power to control output across the market, and thereby control prices. Id. at 1437. Courts generally require a 65% market share to establish a prima facie case of market power. See American Tobacco Co. v. United States, 328 U.S. 781, 797, 66 S.Ct. 1125, 1133, 90 L.Ed. 1575 (1946).

In Kodak, the Supreme Court stated that Kodak's possession of monopoly power was "easily resolved." 504 U.S. at 481, 112 S.Ct. at 2089-90. The Court relied on its earlier discussion of the § 1 claim, where it held that the ISOs had "presented a triable claim that Kodak ha[d] the 'power to control prices or exclude competition' in service and parts." Id. Noting that "monopoly power" under § 2 requires "something greater than market power under § 1," the Court held that the "evidence that Kodak controls nearly 100% of the parts market and 80% to 95% of the service market, with no readily available substitutes ... sufficient to survive summary judgment...." Id.

***

3.

[14] The third and final monopoly power factor concerns barriers to market entry and barriers to expansion. [FN5] Rebel Oil, 51 F.3d at*12081439. A § 2 plaintiff, establishing monopoly power by circumstantial evidence, must establish more than just market share. Even a 100% monopolist may not exploit its monopoly power in a market without entry barriers. See Los Angeles Land Co. v. Brunswick Corp., 6 F.3d 1422, 1427 (9th Cir.1993) (citation omitted). A § 2 plaintiff must show that new competitors face high market barriers to entry and that current competitors lack the ability to expand their output to challenge a monopolist's high prices. Rebel Oil, 51 F.3d at 1439. Barriers to entry "must be capable of constraining the normal operation of the market to the extent that the problem is unlikely to be self-correcting." Id., 51 F.3d at 1439 (citing United States v. Syufy Enterprises, 903 F.2d 659, 663 (9th Cir.1990)). Common entry barriers include: patents or other legal licenses, control of essential or superior resources, entrenched buyer preferences, high capital entry costs and economies of scale. Id.

FN5. Contrary to the ISOs' argument, the Kodak Court's criticism of simultaneous entry barriers to parts and service did not lessen the requirements for showing market power; rather, the Court's statement foreclosed Kodak's argument that prevention of ISO free-riding on its investment in parts justified its actions as a matter of law. 504 U.S. at 485, 112 S.Ct. at 2092.

Kodak argues that the ISOs failed to prove meaningful entry barriers. The record proves otherwise. Kodak has 220 patents and controls its designs and tools, brand name power and manufacturing capability. Kodak controls original- equipment manufacturers through various contract arrangements. Kodak has consistently maintained a high share of the service market. These factors together with the economies of scale, support a finding of high barriers to entry by new manufacturers and to increased output by established suppliers. See Reazin v. Blue Cross and Blue Shield of Kansas, Inc., 899 F.2d 951, 968 (10th Cir.1990) ("Entry barriers may include high capital costs or regulatory or legal requirements such as patents or licenses.").

Kodak fails to rebut this evidence. Kodak focuses on the testimony of an ISO witness who stated: "[y]ou could get in my business tomorrow if you had the expertise." That witness, however, also identified capital and consumer demand as other significant barriers to market entry. Although some new entry was possible, the record reflects substantial evidence of entry barriers sufficient to prevent Kodak's monopoly share from self-correcting. See Rebel Oil, 51 F.3d at 1440-41 ("Barriers may still be 'significant' if the market is unable to correct itself despite the entry of small rivals."). Kodak claims that the same witness testified that he could make any part if ISOs servicing a total of 2,000 machines would buy the part. The witness actually only agreed that he would "supply more Kodak parts," if there were 2,000 machines needing them. We reject Kodak's sufficiency of the evidence claim.

B. Use of Monopoly Power

The second element of a § 2 monopoly claim, the "conduct" element, is the use of monopoly power "to foreclose competition, to gain a competitive advantage, or to destroy a competitor." Kodak, 504 U.S. at 482-83, 112 S.Ct. at 2090 (quoting United States v. Griffith, 334 U.S. 100, 107, 68 S.Ct. 941, 945, 92 L.Ed. 1236 (1948)). The ISOs proceeded under a "monopoly leveraging" theory, alleging that Kodak used its monopoly over Kodak parts to gain or attempt to gain a monopoly over the service of Kodak equipment. The Supreme Court endorsed this theory in Kodak noting: "If Kodak adopted its parts and service policies as part of a scheme of willful acquisition or maintenance of monopoly power, it will have violated § 2." Id. (citations omitted). "Willful acquisition" or "maintenance of monopoly power" involves "exclusionary conduct," not power gained "from growth or development as a consequence of a superior product, business acumen, or historic accident." Grinnell, 384 U.S. at 570-71, 86 S.Ct. at 1704.

[15] Kodak attacks the district court's monopoly conduct jury instructions as well as the ISOs' evidence establishing Kodak's exclusionary conduct. A challenge to a jury instruction on the grounds that it misstates the relevant elements is a question of law reviewed de novo. Caballero v. Concord, 956 F.2d 204, 206 (9th Cir.1992). As noted, the jury's verdict will stand if supported by substantial evidence.

1.

[16] Kodak's chief complaint with the monopoly power jury instructions lies with Jury*1209Instruction No. 29. That Instruction, entitled "Monopolization--Monopoly Conduct," states in relevant part:

[a] company with monopoly power in a relevant market has no general duty to cooperate with its business rivals and may refuse to deal with them or with their customers if valid business reasons exist for such refusal. It is unlawful, however, for a monopolist to engage in conduct, including refusals to deal, that unnecessarily excludes or handicaps competitors in order to maintain a monopoly.

(emphasis added). Kodak argues that this instruction lacks objective standards and improperly includes within the prohibited activities a lawful monopolist's "aggressive" competition.

Specifically, Kodak challenges Instruction No. 29's "unnecessarily excludes or handicaps competitors" language. Kodak says that this language is based on a form of "monopoly leveraging" that we previously rejected in Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536, 543 (9th Cir.1991). In Alaska Airlines we did reject the Second Circuit's holding in Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir.1979). Berkey Photo recognized liability under § 2 of the Sherman Act on a theory of monopoly leveraging involving a firm which used "its monopoly power in one market to gain a competitive advantage in another, albeit without an attempt to monopolize the second market." 603 F.2d at 275. In Alaska Airlines, we held that "monopoly leveraging" could not exist as a basis for § 2 liability in the absence of the defendant using its monopoly in one market to monopolize or attempt to monopolize the downstream market. 948 F.2d at 547. We characterized Berkey Photo 's downstream monopoly requirement--"to gain a competitive advantage"--as too "loose." Alaska Airlines, 948 F.2d at 546.

***

3.

***

III

[20][21] Our conclusion that the ISOs have shown that Kodak has both attained monopoly power and exercised exclusionary conduct does not end our inquiry. Kodak's conduct may not be actionable if supported by a legitimate business justification. When a legitimate business justification supports a monopolist's exclusionary conduct, that conduct does not violate § 2 of the Sherman Act. See Kodak, 504 U.S. at 483, 112 S.Ct. at 2090-91; Oahu Gas, 838 F.2d at 368. A plaintiff may rebut an asserted business justification by demonstrating either that the justification does not legitimately promote competition or that the justification is pretextual. See Kodak, 504 U.S. at 483-84, 112 S.Ct. at 2090-91 (citing Kodak, 903 F.2d at 618). Kodak asserts that the protection of its patented and copyrighted parts is a valid business justification for its anticompetitive conduct and argues that the district court's erroneous jury instructions made it impossible for the jury to properly consider this justification. Kodak attacks the district court's failure both to provide a "less restrictive *1213alternatives" instruction, and to instruct as to Kodak's intellectual property rights. Jury instructions "must be formulated so that they fairly and adequately cover the issues presented, correctly state the law, and are not misleading." Knapp v. Ernst & Whinney, 90 F.3d 1431, 1437 (9th Cir.1996), cert. denied, --- U.S. ----, 117 S.Ct. 952, 136 L.Ed.2d 839 (1997). To the extent that Kodak alleges error in the district court's formulation of the instructions, we consider the instructions as a whole and apply an abuse of discretion standard to determine if they are "misleading or inadequate." Id. (citation omitted). To the extent that Kodak argues that the district court misstated the elements the ISOs were required to prove at trial, we review the instructions de novo. Id.

A. Least Restrictive Alternatives

[22] Kodak argues that the district court erred by failing to instruct the jury that it was not to consider whether Kodak could have accomplished its business objectives through less restrictive alternatives. Kodak also questions the sufficiency of the ISOs' pretext evidence. The ISOs counter that Kodak waived its arguments regarding business justifications by failing to move for judgment as a matter of law. We disagree. To the extent that Kodak's arguments focus on the jury instructions and not the general sufficiency of the evidence, Rule 50(b) does not apply.

[23] Kodak argues that monopolization, unlike tying, does not require consideration of whether the defendant could have achieved its aims through less restrictive alternatives. Kodak, however, cites no authority mandating an instruction requiring that the jury not consider "less restrictive alternatives." Kodak's argument rests on the combination of the district court's refusal to use Kodak's requested language and Kodak's disagreement with the "unnecessarily excludes or handicaps competitors" language of Jury Instruction Nos. 29 and 34. As a result of this combination, Kodak argues, the ISOs were able to argue a "necessity" standard and ask the jury to weight what Kodak did "against the alternatives."

As discussed above, the "unnecessarily excluded or handicaps" language was permissible under Aspen Skiing. Moreover, the district court's instruction here, Instruction No. 28, was very similar to both the language proposed by Kodak and the language endorsed by the Supreme Court in Aspen Skiing, 472 U.S. at 597, 105 S.Ct. at 2854-55. Jury Instruction No. 28 defines "exclusionary conduct" as impairing "the efforts of others to compete for customers in an unnecessarily restrictive way." The district court also instructed that: (1) Kodak could refuse to deal if valid business reasons existed and (2) the jury could not "second guess whether Kodak's business judgment was wise or correct in retrospect." Under these instructions the jury could not consider "less restrictive alternatives" without "second guessing" Kodak and thus violating the jury instructions. We presume that the jury followed the court's instructions. United States v. Alston, 974 F.2d 1206, 1210 (9th Cir.1992).

Kodak next argues that the ISOs' primary arguments refuting Kodak's business justifications were "less restrictive alternative" arguments. Kodak focuses on the ISOs' attack on Kodak's quality control justification as one such "less restrictive alternative" argument. Kodak argues that because "the legitimacy of quality control is beyond reproach," the ISOs were forced to establish this justification, and others, were pretextual. The ISOs did establish pretext: they attacked Kodak's quality control justification on the grounds that it was pretextual, not because it was the least restrictive alternative. Counsel for the ISOs argued that Kodak's quality control justification was "a joke" because ISOs do not interfere with the quality of Kodak's service. We hold that the district court did not err in its instructions.

[24] Kodak has waived its insufficiency of evidence claim on this issue by failing to move for judgment as a matter of law at trial. We review only for plain error. Cabrales, 864 F.2d at 1459. The ISOs' evidence suffices to support the jury's ejection of Kodak's business justifications, as the record reflects evidence of pretext. The ISOs presented evidence that: (1) Kodak adopted its parts policy only after an ISO won a contract*1214with the State of California; (2) Kodak allowed its own customers to service their machines; (3) Kodak customers could distinguish breakdowns due to poor service from breakdowns due to parts; and (4) many customers preferred ISO service.

B. Intellectual Property Rights

Kodak also attacks the district court's business justifications instructions for their failure to properly detail Kodak's intellectual property rights. Kodak argues that the court failed to instruct the jury that Kodak's numerous patents and copyrights provide a legitimate business justification for Kodak's alleged exclusionary conduct. Kodak holds 220 valid United States patents covering 65 parts for its high volume photocopiers and micrographics equipment, and all Kodak diagnostic software and service software are copyrighted. The jury instructions do not afford Kodak any "rights" or "privileges" based on its patents and copyrights: all parts are treated the same. In Jury Instruction No. 37, the court told the jury:

[i]f you find that Kodak engaged in monopolization or attempted monopolization by misuse of its alleged parts monopoly ... then the fact that some of the replacement parts are patented or copyrighted does not provide Kodak with a defense against any of those antitrust claims.

In Jury Instruction No. 28, the court stated, over Kodak's objection, that:

[s]uch [exclusionary] conduct does not refer to ordinary means of competition, like offering better products or services, exercising superior skill or business judgment, utilizing more efficient technology, or exercising natural competitive advantages.

Kodak proposed to include "exercising lawful patents and copyrights" amongst the list of non-exclusionary conduct in Instruction No. 28, but the district court rejected that language.

Kodak's challenge raises unresolved questions concerning the relationship between federal antitrust, copyright and patent laws. In particular we must determine the significance of a monopolist's unilateral refusal to sell or license a patented or copyrighted product in the context of a § 2 monopolization claim based upon monopoly leveraging. This is a question of first impression.

1.

We first identify the general principles of antitrust, copyright and patent law as we must ultimately harmonize these statutory schemes in responding to Kodak's challenge.

Antitrust law seeks to promote and protect a competitive marketplace for the benefit of the public. See Standard Oil Co. v. United States, 221 U.S. 1, 58, 31 S.Ct. 502, 515, 55 L.Ed. 619 (1911); SCM Corp. v. Xerox Corp., 645 F.2d 1195, 1203 (2d Cir.1981). The Sherman Act, the relevant antitrust law here, prohibits efforts both to restrain trade by combination or conspiracy and the acquisition or maintenance of a monopoly by exclusionary conduct. 15 U.S.C. §§ 1, 2.

Patent law seeks to protect inventions, while inducing their introduction into the market for public benefit. SCM Corp., 645 F.2d at 1203. Patent laws "reward the inventor with the power to exclude others from making, using or selling [a patented] invention throughout the United States." Id. [FN7] Meanwhile, the public benefits both from the *1215 faster introduction of inventions, and the resulting increase in market competition. Legally, a patent amounts to a permissible monopoly over the protected work. See Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 135, 89 S.Ct. 1562, 1583, 23 L.Ed.2d 129 (1969). Patent laws "are in pari materia with the antitrust laws and modify them pro tanto (as far as the patent laws go)." Simpson v. Union Oil Co., 377 U.S. 13, 24, 84 S.Ct. 1051, 1058, 12 L.Ed.2d 98 (1964).

FN7. In 1988, Congress amended the patent laws to provide that "[n]o patent owner otherwise entitled to relief for infringement ... of a patent shall be denied relief or deemed guilty of misuse or illegal extension of the patent right by reason of ... (4) [the patent owner's] refus[al] to license or use any rights to the patent." 35 U.S.C. § 271(d) (1988).

The First Circuit has observed that this amendment "may even herald the prohibition of all antitrust claims ... premised on a refusal to license a patent." Data General, 36 F.3d at 1187 (citing Richard Calkins, "Patent Law: The Impact of the 1988 Patent Misuse Reform Act and Noerr-Pennington Doctrine on Misuse Defenses and Antitrust Counterclaims," 38 Drake L.Rev. 175, 192-97 (1988-89)). The amended statutory language does not compel this result, and Calkins and other commentators agree that § 271(d)(4) merely codified existing law. See Calkins, 38 Drake L.Rev. at 197; 5 Donald S. Chisum, Patents, § 19.04[1] at 19-295 (1992) ( "The 'refusal to license' provision received little attention in the floor statements, primarily because the provision was intended to codify existing law."). The amendment does, however, indicate congressional intent to protect the core patent right of exclusion.

Federal copyright law "secure[s] a fair return for an author's creative labor" in the short run, while ultimately seeking "to stimulate artistic creativity for the general public good." Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156, 95 S.Ct. 2040, 2044, 45 L.Ed.2d 84 (1975) (internal quotations omitted). The Copyright Act grants to the copyright owner the exclusive right to distribute the protected work. 17 U.S.C. § 106. This right encompasses the right to "refrain from vending or licensing," as the owner may "content [itself] with simply exercising the right to exclude others from using [its] property." Data General, 36 F.3d at 1186 (quoting Fox Film Corp. v. Doyal, 286 U.S. 123, 127, 52 S.Ct. 546, 547, 76 L.Ed. 1010 (1932)); see Stewart v. Abend, 495 U.S. 207, 228-29, 110 S.Ct. 1750, 1764, 109 L.Ed.2d 184 (1990)("nothing in the copyright statutes would prevent an author from hoarding all of his works during the term of the copyright.")

Clearly the antitrust, copyright and patent laws both overlap and, in certain situations, seem to conflict. This is not a new revelation. We have previously noted the "obvious tension" between the patent and antitrust laws: "[o]ne body of law creates and protects monopoly power while the other seeks to proscribe it." United States v. Westinghouse Electric Corp., 648 F.2d 642, 646 (9th Cir.1981) (citations omitted). Similarly, tension exists between the antitrust and copyright laws. See Data General, 36 F.3d at 1187.

Two principles have emerged regarding the interplay between these laws: (1) neither patent nor copyright holders are immune from antitrust liability, and (2) patent and copyright holders may refuse to sell or license protected work. First, as to antitrust liability, case law supports the proposition that a holder of a patent or copyright violates the antitrust laws by "concerted and contractual behavior that threatens competition." Id. at 1185 n. 63 (citation omitted). In Kodak, the Supreme Court noted:

[we have] held many times that power gained through some natural advantage such as a patent, copyright, or business acumen can give rise to liability if 'a seller exploits his dominant position in one market to expand his empire into the next.'

504 U.S. at 479 n. 29, 112 S.Ct. at 2089 n. 29 (quoting Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 611, 73 S.Ct. 872, 882, 97 L.Ed. 1277 (1953) and citing Northern Pacific R. Co. v. United States, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958); United States v. Paramount Pictures, Inc., 334 U.S. 131, 68 S.Ct. 915, 92 L.Ed. 1260 (1948); Leitch Mfg. Co. v. Barber Co., 302 U.S. 458, 463, 58 S.Ct. 288, 290-91, 82 L.Ed. 371 (1938)).

Case law also supports the right of a patent or copyright holder to refuse to sell or license protected work. See Westinghouse, 648 F.2d at 647. In United States v. Westinghouse Electric Corp., we held that "[t]he right to license [a] patent, exclusively or otherwise, or to refuse to license at all, is the 'untrammeled right' of the patentee." Id. (quoting Cataphote Corporation v. DeSoto Chemical Coatings, Inc., 450 F.2d 769, 774 (9th Cir.1971)); see Zenith Radio Corp., 395 U.S. at 135, 89 S.Ct. at 1583 (the patent holder has the "right to invoke the State's power to prevent others from utilizing [the] discovery without [the patent holder's] consent") (citations omitted); Tricom Inc. v. Electronic Data Systems Corp., 902 F.Supp. 741, 743 (E.D.Mich.1995) ("Under patent and copyright law, [the owner] may not be compelled to license ... to anyone.") (citations omitted).

2.

Next we lay out the problem presented here. The Supreme Court touched on this question in Kodak, i.e., the effect to be given a monopolist's unilateral refusal to sell or license a patented or copyrighted product in the context of a § 2 monopoly leveraging claim. In footnote 29, previously discussed, *1216 the Supreme Court in Kodak refutes the argument that the possession by a manufacturer of "inherent power" in the market for its parts "should immunize [that manufacturer] from the antitrust laws in another market." 504 U.S. at 479 n. 29, 112 S.Ct. at 2089 n. 29. The Court stated that a monopolist who acquires a dominant position in one market through patents and copyrights may violate § 2 if the monopolist exploits that dominant position to enhance a monopoly in another market. Although footnote 29 appears in the Court's discussion of the § 1 tying claim, the § 2 discussion frequently refers back to the § 1 discussion, and the Court's statement that "exploit[ing][a] dominant position in one market to expand [the] empire into the next" is broad enough to cover monopoly leveraging under § 2. Id. [FN8] By responding in this fashion, the Court in Kodak supposed that intellectual property rights do not confer an absolute immunity from antitrust claims.

FN8. The cases cited by the Supreme Court also support this conclusion. In Times-Picayune, the Court addressed both a § 1 tying claim and a § 2 monopolization claim. 345 U.S. at 611, 73 S.Ct. at 881-82. Regarding the § 1 claim, the Court found insufficient power in the relevant market to support "dominance." Id. Later in addressing the § 2 claim, the Supreme Court held that "[t]his case does not demonstrate an attempt by a monopolist established in one area to nose into a second market...." Id. at 626, 73 S.Ct. at 890.

Also relevant to the relationship between § 1 and § 2, the Court in Leitch Manufacturing held that it made no difference that the defendant had not expanded its monopoly "by contract." 302 U.S. at 463, 58 S.Ct. at 291. The Court held:

[T]he owner of the patent monopoly, ignoring the limitation 'inherent in the patent grant,' sought by its method of doing business to extend the monopoly to unpatented material

.... [This is unlawful] whatever the nature of the device by which the owner of the patent seeks to effect such unauthorized extension of the monopoly.

Id. (citation omitted); see also Mercoid Corp. v. Mid-Continent Investment Co., 320 U.S. 661, 665, 64 S.Ct. 268, 271, 88 L.Ed. 376 (1943) ( "The method by which the monopoly is sought to be extended is immaterial.")

The particular patent misuse issues addressed in Leitch and Mercoid are now controlled by 35 U.S.C. § 271, Dawson Chem. Co. v. Rohm & Haas, 448 U.S. 176, 100 S.Ct. 2601, 65 L.Ed.2d 696 (1980), but this does not alter the application of their reasoning here.

The Kodak Court, however, did not specifically address the question of antitrust liability based upon a unilateral refusal to deal in a patented or copyrighted product. Kodak and its amicus correctly indicate that the right of exclusive dealing is reserved from antitrust liability. We find no reported case in which a court has imposed antitrust liability for a unilateral refusal to sell or license a patent or copyright. [FN9] Courts do not generally view a monopolist's unilateral refusal to license a patent as "exclusionary conduct." See Data General, 36 F.3d at 1186 (citing Miller Insituform, Inc. v. Insituform of North America, 830 F.2d 606, 609 (6th Cir.1987)) ("A patent holder who lawfully acquires a patent cannot be held liable under Section 2 of the Sherman Act for maintaining the monopoly power he lawfully acquired by refusing to license the patent to others."); Westinghouse, 648 F.2d at 647 (finding no antitrust violation because "Westinghouse has done no more than to license some of its patents and refuse to license others"); SCM Corp., 645 F.2d at 1206 ("where a patent has been lawfully acquired, subsequent conduct permissible under the patent laws cannot trigger any liability under the antitrust laws.").

FN9. The ISOs correctly observe that this case involves a selective refusal to sell products protected by patents and copyrights, not an absolute refusal to license. This distinction makes no difference. See Westinghouse, 648 F.2d at 647 ("the right to license ... exclusively or otherwise ... is the 'untrammeled right' of the patentee."). The ISOs offer no rationale for a distinction between discriminatory licensing and discriminatory sales.

[25] This basic right of exclusion does have limits. For example, a patent offers no protection if it was unlawfully acquired. Data General, 36 F.3d at 1186 (citing SCM Corp., 645 F.2d at 1208-09). Nor does the right of exclusion protect an attempt to extend a lawful monopoly beyond the grant of a patent. See Mercoid, 320 U.S. at 665, 64 S.Ct. at 271. Section 2 of the Sherman Act condemns exclusionary conduct that extends natural monopolies into separate markets. Much depends, therefore, on the definition of the patent grant and the relevant market.

The relevant market for determining the patent or copyright grant is determined under*1217patent or copyright law. See, e.g., id. at 666, 64 S.Ct. at 271 (the patent's grant "is limited to the invention which it defines."). The relevant markets for antitrust purposes are determined by examining economic conditions. See Kodak, 504 U.S. at 462, 112 S.Ct. at 2079-80 (citing Jefferson Parish Hospital Dist. No. 2. v. Hyde, 466 U.S. 2, 21-22, 104 S.Ct. 1551, 1563-64, 80 L.Ed.2d 2 (1984)). We recently noted the distinction between copyright market definition and antitrust market definition in Triad Systems Corp. v. Southeastern Express Co., 64 F.3d 1330 (9th Cir.1995). There, the plaintiff, Southeastern, argued that the copyright of the defendant, Triad, did not "extend to the service market" for Triad computers. We disagreed stating:

Triad invented, developed, and marketed its software to enable its customers and its own technicians to service Triad computers. Southeastern is getting a free ride when it uses that software to perform precisely the same service. Triad is entitled to licensing fees from Southeastern and other ISOs....

Id. at 1337. Rather than merely requiring Southeastern to pay for future use, the district court enjoined Southeastern from servicing the computers that had licensed software. See id. at 1334. We never reached Southeastern's antitrust counterclaims, as they had not yet been tried. Id. at 1338 (district court properly bifurcated the copyright and antitrust claims). Neither did we refer to antitrust principles in defining the reach of Triad's copyright.

Parts and service here have been proven separate markets in the antitrust context, but this does not resolve the question whether the service market falls "reasonably within the patent [or copyright] grant" for the purpose of determining the extent of the exclusive rights conveyed. Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 708-09 (Fed.Cir.1992). These are separate questions, which may result in contrary answers. At the border of intellectual property monopolies and antitrust markets lies a field of dissonance yet to be harmonized by statute or the Supreme Court.

When an owner of intellectual property takes concerted action in violation of § 1, this dissonance does not threaten his core right of exclusion. [FN10] See Brownell v. Ketcham Wire & Manufacturing Co., 211 F.2d 121, 129 (9th Cir.1954) (listing acts giving rise to antitrust liability). Contrary to the ISOs' arguments, there is an important difference between § 1 tying and § 2 monopoly leveraging: the limiting principles of § 1 restrain those claims from making the impact on intellectual property rights threatened by § 2 monopoly leveraging claims. Where, as here, the claim involves a failure to act that is at the heart of the property right, liability depends largely on market definition and lacks the limiting principles of § 1. Under § 2, "[b]ehavior that might otherwise not be of concern to the antitrust laws--or that might even be viewed as procompetitive--can take on exclusionary connotations when practiced by a monopolist." Kodak, 504 U.S. at 488, 112 S.Ct. at 2093 (Scalia, J. dissenting) (citing 3 Areeda & Turner, ¶ 813, at 300-302); see also Greyhound Computer v. International Business Machines, 559 F.2d 488, 498 (9th Cir.1977) (otherwise lawful conduct may be exclusionary when practiced by a monopolist). Harmonizing antitrust monopoly theory with the monopolies granted by intellectual property law requires that some weight be given to the intellectual property rights of the monopolist.

FN10. The ISOs withdrew their tying claim. The ISOs' Amici, National Electronics Service Dealers Association and Professional Service Association, argue that the record reflects concerted action by Kodak, but the jury instructions do not define such action and we should not presume that it was found.

The effect of claims based upon unilateral conduct on the value of intellectual property rights is a cause for serious concern. Unilateral conduct is the most common conduct in the economy. After Kodak, unilateral conduct by a manufacturer in its own aftermarkets may give rise to liability and, in one-brand markets, monopoly power created by patents and copyrights will frequently be found. Under current law the defense of monopolization claims will rest largely on the legitimacy of the asserted business justifications,*1218as evidenced by the jury instructions approved in Aspen Skiing.

Without bounds, claims based on unilateral conduct will proliferate. The history of this case demonstrates that such claims rest on highly disputed factual questions regarding market definition. Particularly where treble damages are possible, such claims will detract from the advantages lawfully granted to the holders of patents or copyrights by subjecting them to the cost and risk of lawsuits based upon the effect, on an arguably separate market, of their refusal to sell or license. The cost of such suits will reduce a patent holder's "incentive ... to risk the often enormous costs in terms of time, research, and development." Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 480, 94 S.Ct. 1879, 1885, 40 L.Ed.2d 315 (1974). Such an effect on patent and copyright holders is contrary to the fundamental and complementary purposes of both the intellectual property and antitrust laws, which aim to "encourag[e] innovation, industry and competition." Atari Games Corp. v. Nintendo of America, Inc., 897 F.2d 1572, 1576 (Fed.Cir.1990) (citing Loctite Corp. v. Ultraseal Ltd., 781 F.2d 861, 876-77, (Fed.Cir.1985)). [FN11]

FN11. That antitrust claims may cut into the core rights conferred by patents and copyrights is illustrated by the injunction imposed by the district court here. The injunction requires that Kodak supply all ISOs with its patented and copyrighted materials at "reasonable prices." Even the ISOs do not dispute that Kodak is entitled to reap monopoly prices from the sale or licensing of these materials.

3.

[26] We now resolve the question detailed above. Under the fact-based approaches of Aspen Skiing and Kodak, some measure must guarantee that the jury account for the procompetitive effects and statutory rights extended by the intellectual property laws. To assure such consideration, we adopt a modified version of the rebuttable presumption created by the First Circuit in Data General, and hold that "while exclusionary conduct can include a monopolist's unilateral refusal to license a [patent or] copyright," or to sell its patented or copyrighted work, a monopolist's "desire to exclude others from its [protected] work is a presumptively valid business justification for any immediate harm to consumers." Data General, 36 F.3d at 1187.

This presumption does not "rest on formalistic distinctions" which "are generally disfavored in antitrust laws;" rather it is based on "actual market realities." Kodak, 504 U.S. at 466-67, 112 S.Ct. at 2082. This presumption harmonizes the goals of the relevant statutes and takes into account the long term effects of regulation on these purposes. The presumption should act to focus the factfinder on the primary interest of both intellectual property and antitrust laws: public interest. Mercoid, 320 U.S. at 665, 64 S.Ct. at 271 (citation omitted) ("It is the public interest which is dominant in the patent system."); Standard Oil, 221 U.S. at 58, 31 S.Ct. at 515 (antitrust laws serve the public interest by encouraging effective competition).

[27][28] Given this presumption, the district court's failure to give any weight to Kodak's intellectual property rights in the jury instructions constitutes an abuse of discretion. This error was, however, harmless. The ISOs maintain that Kodak argued protection of intellectual property as a business justification to the jury, which rejected this justification as pretextual. An error in instructing the jury in a civil case does not require reversal if it is more probable than not harmless. Jenkins v. Union Pacific R. Co., 22 F.3d 206, 210 (9th Cir.1994).

Kodak contends that the district court's jury instructions prevented it from arguing intellectual property to the jury. Although Kodak listed "Protect [ ] Kodak's R & D investment and intellectual property rights" among the seven business justifications it presented, the only argument Kodak made in closing was this:

Protecting Investments. By itself, again, another legitimate business reason. You've already seen the size of the investments. And indeed, Plaintiffs themselves recognized that they wouldn't be in business unless Kodak made those investments.

*1219 Phrased in these broad terms, Kodak's argument repeats the "free- riding" justification rejected, as a matter of law, by the Supreme Court. Kodak, 504 U.S. at 485, 112 S.Ct. at 2092. The Supreme Court held that preventing the ISOs from "exploit[ing] the investment Kodak has made in product development, manufacturing and equipment sales" does not suffice as a business justification. Id. ("This understanding of free-riding has no support in our case law.").

Given the interplay of the antitrust and intellectual property laws discussed above, Kodak's contention that its refusal to sell its parts to ISOs was based on its reluctance to sell its patented or copyrighted parts was a presumptively legitimate business justification. See Data General, 36 F.3d. at 1187. Kodak may assert that its desire to profit from its intellectual property rights justifies its conduct, and the jury should presume that this justification is legitimately procompetitive.

Nonetheless, this presumption is rebuttable. See id. at 1188. In Data General, the First Circuit reasoned that the plaintiff did not rebut the presumption by drawing an analogy to Aspen Skiing, where a monopolist made an important change in a its practices, which had both originated in a competitive market and persisted for several years. See Data General, 36 F.3d at 1188. Because competitive conditions had never prevailed in the service market, the First Circuit concluded that it would be inappropriate to infer "from [defendant's] change of heart that its former policies 'satisfy consumer demand in free competitive markets.' " Id. at 1188 (quoting Aspen Skiing, 472 U.S. at 603, 105 S.Ct. at 2858). As in Data General, we are not faced here with a simple comparison between the monopolist's market and the established competitive market found in Aspen Skiing.

The Data General court noted that the presumption of legitimacy can be rebutted by evidence that the monopolist acquired the protection of the intellectual property laws in an unlawful manner. See 36 F.3d at 1188 (citation omitted). The presumption may also be rebutted by evidence of pretext. Neither the aims of intellectual property law, nor the antitrust laws justify allowing a monopolist to rely upon a pretextual business justification to mask anticompetitive conduct. See Kodak, 504 U.S. at 484, 112 S.Ct. at 2091 (Because "Kodak's willingness to allow self-service casts doubt on its quality claim .... a reasonable trier of fact could conclude that [this justification] is pretextual.") (citation omitted).

Kodak defends its intellectual property rights "justification" against claims of pretext. Kodak argues that its subjective motivation is irrelevant. Kodak also contends, citing Olympia Equipment Leasing Co. v. Western Union Telegraph Co., 797 F.2d 370, 379 (7th Cir.), reh'g denied, (7th Cir.1986), that a desire to best the competition does not prove pretext, nor does hostility to competitors. Kodak's argument and its accompanying authority stands for nothing more than the proposition that a desire to compete does not demonstrate pretext.

Evidence regarding the state of mind of Kodak employees may show pretext, when such evidence suggests that the proffered business justification played no part in the decision to act. Kodak's parts manager testified that patents "did not cross [his] mind" at the time Kodak began the parts policy. Further, no distinction was made by Kodak between "proprietary" parts covered by tooling or engineering clauses and patented or copyrighted products. In denying Kodak's motion for a new trial, the district court commented that Kodak was not actually motivated by protecting its intellectual property rights. Kodak argues that the district court should have allowed the jury to reach this conclusion.

Kodak photocopy and micrographics equipment requires thousands of parts, of which only 65 were patented. Unlike the other cases involving refusals to license patents, this case concerns a blanket refusal that included protected and unprotected products. Cf. Westinghouse, 648 F.2d at 647 (refusal to license patents); SCM Corp., 645 F.2d at 1197 (same); Miller Insituform, 830 F.2d at 607 (claim based on termination of license agreement). From this evidence, it is more probable than not that the jury would have found Kodak's presumptively valid business *1220 justification rebutted on the grounds of pretext. [FN12]

FN12. In Jury Instruction No. 34, the jury was instructed that, if they "find that any Kodak business reason" is a legitimate business reason, in that it "furthers competition on the merits, reduces prices, enhances the quality or attractiveness of a product, increases efficiency by reducing costs or otherwise benefits consumers," they "should then consider whether each such reason is pretextual-in other words, not a genuine reason for Kodak's conduct."

Kodak argues that the existence of some patented and copyrighted products undermines ISOs "all parts" theory. To the contrary, as discussed above, the "all parts" market reflects the "commercial realities" of the marketplace and the lack of identifiable separate markets for individual parts. The fact that Kodak did not differentiate between patented and nonpatented parts lends further support to the existence of these commercial realities. The jury accepted the "all parts" theory and found a scheme to monopolize the service market through Kodak's conduct. We hold that the district court's failure to instruct on Kodak's intellectual property rights was harmless.

***

We direct the following modifications to the injunction:

1. DEFINITION OF TERMS

As used in this permanent injunction, the following terms shall have the following meanings:

(a)"Kodak" shall mean the defendant Eastman Kodak Company, its officers, agents, servants, employees, attorneys and all persons in active concert or participation with any of them who receive notice of this injunction [, and Kodak's successors and assigns].

(b)"Kodak equipment" shall refer to all past, present and future micrographic equipment (whether film or digitized media based) made by or for defendant and to all Kodak high volume photocopiers made by or for defendant Kodak including, without limitation, all such equipment serviced by Kodak personnel in the field.

(c)"ISOs" shall refer to any person, firm, corporation or other entity engaged, in whole or in part, in providing equipment on site or field repair or maintenance service to end user customers possessing Kodak micrographic equipment or Kodak high volume photocopiers in the United States.

(d)"Parts" includes the following:(i) parts for Kodak equipment;

(ii) parts identified or described in Kodak's Parts Lists;

(iii) all parts or supply items that are field replaceable by Kodak technicians (including, without limitation, subassemblies--to the extent that subassemblies are available to Kodak technicians--circuit board level parts, IC chips, image loops, pm packs, filters and cleaning kits);

(iv) service manuals (including those incorporated in hard copy, microfiche or other medium), parts, lists, price lists; and

(v) all tools or devices essential to servicing Kodak equipment including, but not limited to, service modules, meters and electrometers, but excluding tools and devices which are generally available from normal commercial sources and which are not distributed by Kodak to its technicians.

(e)"Kodak parts" include any part assembled, prepared or manufactured by Kodak. Kodak parts shall not include parts manufactured by original-equipment manufacturers for Kodak.

2. SALE OR PARTS FOR HIGH VOLUME COPIERS AND MICROGRAPHIC EQUIPMENT BY KODAK

(a) Kodak shall sell Kodak parts to ISOs or any buying cooperatives acting on *1227 behalf of ISOs for all models of Kodak equipment for which Kodak or its authorized agents offer service, provided that Kodak reserves the right to require cash on delivery for new sales to any person without an established and reasonably acceptable credit history or who is in default of an obligation to pay Kodak for previous orders or to take other reasonable actions related to credit if applied to ISOs and other third parties in a nondiscriminatory manner.

(b) All orders for Kodak parts by ISOs shall be made through the Kodak Customer Parts and Product Support Center (or similar facility) currently located in Rochester, New York.

(c) To the extent Kodak offers to its own technicians, for their use in repairing and maintaining Kodak equipment, individual Kodak parts as well as subassemblies containing numerous Kodak parts, or to the extent it is reasonable to do so, Kodak will offer to sell to any interested party on [reasonable and] nondiscriminatory terms and prices such individual parts and subassemblies, even though doing so gives the prospective purchaser the option of obtaining a particular part by itself or as a component of a subassembly.

(d) The provisions of this Injunction apply to equipment models which Kodak will introduce during the term of this Injunction as well as to the equipment models which Kodak has already introduced.

(e)"Sell" as used in paragraph 2(a), above, includes, at Kodak's option, "license" with respect to any copyrighted "parts," on [reasonable and] nondiscriminatory terms.

3. ISO ACCESS TO THIRD PARTY SOURCES OF PARTS

(a) Kodak shall not interfere with the ISOs' purchase of parts from third party vendors (including the purchase of parts from Kodak parts suppliers), so long as the ISOs or vendors are not causing the breach of any obligation of themselves or a third party not to disclose proprietary Kodak data, specifications, drawings and/or schematic diagrams; provided that the sale of a part by a third party vendor or Kodak part supplier shall not be deemed to be a disclosure of Kodak proprietary data.

4. NO DISCRIMINATION AGAINST ISOs

(a) Kodak shall not discriminate against any ISO regarding parts availability or prices vis-a-vis any other ISOs, or any other commercial service provider or end user (i.e., Kodak will sell parts to any ISO at the same prices and terms, conditions and delivery schedules offered to any other ISO commercial service provider or end user ) [which prices, terms and conditions shall, in any event, be reasonable].

(b) Kodak shall not discriminate against any customer or other party on the basis that such customer or other party has used the parts or services of someone other than Kodak in connection with Kodak equipment; provided, however, that nothing in this order shall prohibit Kodak from charging a reasonable fee to inspect Kodak equipment before agreeing to offer an equipment maintenance agreement for service of that Kodak equipment.

5. KODAK'S RETENTION OF PROPRIETARY RIGHTS

Nothing in this Injunction shall prevent Kodak from taking appropriate legal steps to prevent others from duplicating parts for Kodak equipment in which Kodak has a protectable intellectual property interest.

6. NOTICE OF INJUNCTION

Kodak shall, within 45 days of the entry of this injunction, send to its past (within past five years) and current micrographic equipment and high volume photocopiers service customers a notification advising them that Kodak has been ordered to sell Kodak parts to ISOs for the repair and maintenance of Kodak equipment, in a form agreeable to plaintiffs or as approved by the court.

7. TERM OF INJUNCTION

Absent further order of this Court for good cause shown, this Injunction shall *1228 expire ten (10) years from the date of its entry. If Kodak completely exits the service market for either (1) high volume copiers or (2) micrographic equipment, the terms of this injunction shall no longer apply to Kodak parts for that equipment.

8. RETENTION OF JURISDICTION

This Court retains jurisdiction of this matter for the purpose of enabling any party to apply for such further orders and directions as may be necessary or appropriate for the construction, modification or termination of any of the provisions herein, or for enforcement and compliance with its terms or for the punishment of violations.

VII

We AFFIRM as to all liability issues; REVERSE all damages awarded to ASI and those damages awarded for lost sales of used equipment and REMAND for a new trial on used equipment damages. We AFFIRM on the remaining damage awards and AFFIRM the injunction as modified. Additionally, we award partial attorney's fees for the ISOs to be determined by the district court.

AFFIRMED in part, REVERSED in part, and REMANDED for further proceedings.

GILLMOR, District Court Judge, concurring in part and dissenting in part: (omitted)


Fair Use -- Copyright & the 1st Amendment.

114 S.Ct. 1164

127 L.Ed.2d 500, 62 USLW 4169, 1994 Copr.L.Dec. P 27,222, 29 U.S.P.Q.2d 1961, 22 Media L. Rep. 1353

(Cite as: 510 U.S. 569, 114 S.Ct. 1164)

Luther R. CAMPBELL aka Luke Skyywalker, et al., Petitioners,

v. 

ACUFF-ROSE MUSIC, INC.

No. 92-1292.

Supreme Court of the United States

Argued Nov. 9, 1993.

Decided March 7, 1994.

Justice SOUTER delivered the opinion of the Court.

We are called upon to decide whether 2 Live Crew's commercial parody of Roy Orbison's song, "Oh, Pretty Woman," *572 may be a fair use within the meaning of the Copyright Act of 1976, 17 U.S.C. § 107 (1988 ed. and Supp. IV). Although the District Court granted summary judgment for 2 Live Crew, the Court of Appeals reversed, holding the defense of fair use barred by the song's **1168 commercial character and excessive borrowing. Because we hold that a parody's commercial character is only one element to be weighed in a fair use enquiry, and that insufficient consideration was given to the nature of parody in weighing the degree of copying, we reverse and remand.

I

In 1964, Roy Orbison and William Dees wrote a rock ballad called "Oh, Pretty Woman" and assigned their rights in it to respondent Acuff-Rose Music, Inc. See Appendix A, infra, at 1179. Acuff-Rose registered the song for copyright protection.

Petitioners Luther R. Campbell, Christopher Wongwon, Mark Ross, and David Hobbs are collectively known as 2 Live Crew, a popular rap music group. [FN1] In 1989, Campbell wrote a song entitled "Pretty Woman," which he later described in an affidavit as intended, "through comical lyrics, to satirize the original work...." App. to Pet. for Cert. 80a. On July 5, 1989, 2 Live Crew's manager informed Acuff-Rose that 2 Live Crew had written a parody of "Oh, Pretty Woman," that they would afford all credit for ownership and authorship of the original song to Acuff-Rose, Dees, and Orbison, and that they were willing to pay a fee for the use they wished to make of it. Enclosed with the letter were a copy of the lyrics and a recording of 2 Live Crew's song. See Appendix B, infra, at 1179-80. Acuff-Rose's agent refused permission, stating that "I am aware of the success *573enjoyed by 'The 2 Live Crews', but I must inform you that we cannot permit the use of a parody of 'Oh, Pretty Woman.' " App. to Pet. for Cert. 85a. Nonetheless, in June or July 1989, [FN2] 2 Live Crew released records, cassette tapes, and compact discs of "Pretty Woman" in a collection of songs entitled "As Clean As They Wanna Be." The albums and compact discs identify the authors of "Pretty Woman" as Orbison and Dees and its publisher as Acuff-Rose.

FN1. Rap has been defined as a "style of black American popular music consisting of improvised rhymes performed to a rhythmic accompaniment." The Norton/Grove Concise Encyclopedia of Music 613 (1988). 2 Live Crew plays "[b]ass music," a regional, hip-hop style of rap from the Liberty City area of Miami, Florida. Brief for Petitioners 34.

FN2. The parties argue about the timing. 2 Live Crew contends that the album was released on July 15, and the District Court so held. 754 F.Supp. 1150, 1152 (MD Tenn.1991). The Court of Appeals states that Campbell's affidavit puts the release date in June, and chooses that date. 972 F.2d 1429, 1432 (CA6 1992). We find the timing of the request irrelevant for purposes of this enquiry. See n. 18, infra, discussing good faith.

Almost a year later, after nearly a quarter of a million copies of the recording had been sold, Acuff-Rose sued 2 Live Crew and its record company, Luke Skyywalker Records, for copyright infringement. The District Court granted summary judgment for 2 Live Crew, [FN3] reasoning that the commercial purpose of 2 Live Crew's song was no bar to fair use; that 2 Live Crew's version was a parody, which "quickly degenerates into a play on words, substituting predictable lyrics with shocking ones" to show "how bland and banal the Orbison song" is; that 2 Live Crew had taken no more than was necessary to "conjure up" the original in order to parody it; and that it was "extremely unlikely that 2 Live Crew's song could adversely affect the market for the original." 754 F.Supp. 1150, 1154-1155, 1157-1158 (MD Tenn.1991). The District Court weighed these factors and held that 2 Live Crew's song made fair use of Orbison's original. Id., at 1158-1159.

FN3. 2 Live Crew's motion to dismiss was converted to a motion for summary judgment. Acuff-Rose defended against the motion, but filed no cross- motion.

The Court of Appeals for the Sixth Circuit reversed and remanded. 972 F.2d 1429, 1439 (1992). Although it assumed for the purpose of its opinion that 2 Live Crew's song *574 was a parody of the Orbison original, the Court of Appeals thought the District Court had put too little emphasis on the fact that "every commercial use ... is presumptively ... unfair," Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 451, 104 S.Ct. 774, 792, 78 L.Ed.2d 574 (1984), and it held that "the admittedly commercial nature" **1169 of the parody "requires the conclusion" that the first of four factors relevant under the statute weighs against a finding of fair use. 972 F.2d, at 1435, 1437. Next, the Court of Appeals determined that, by "taking the heart of the original and making it the heart of a new work," 2 Live Crew had, qualitatively, taken too much. Id., at 1438. Finally, after noting that the effect on the potential market for the original (and the market for derivative works) is "undoubtedly the single most important element of fair use," Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 566, 105 S.Ct. 2218, 2233, 85 L.Ed.2d 588 (1985), the Court of Appeals faulted the District Court for "refus[ing] to indulge the presumption" that "harm for purposes of the fair use analysis has been established by the presumption attaching to commercial uses." 972 F.2d, at 1438-1439. In sum, the court concluded that its "blatantly commercial purpose ... prevents this parody from being a fair use." Id., at 1439.

We granted certiorari, 507 U.S. 1003, 113 S.Ct. 1642, 123 L.Ed.2d 264 (1993), to determine whether 2 Live Crew's commercial parody could be a fair use.

II

It is uncontested here that 2 Live Crew's song would be an infringement of Acuff-Rose's rights in "Oh, Pretty Woman," under the Copyright Act of 1976, 17 U.S.C. § 106 (1988 ed. and Supp. IV), but for a finding of fair use through parody. [FN4] *575 From the infancy of copyright protection, some opportunity for fair use of copyrighted materials has been thought necessary to fulfill copyright's very purpose, "[t]o promote the Progress of Science and useful Arts...." U.S. Const., Art. I, § 8, cl. 8. [FN5] For as Justice Story explained, "[i]n truth, in literature, in science and in art, there are, and can be, few, if any, things, which in an abstract sense, are strictly new and original throughout. Every book in literature, science and art, borrows, and must necessarily borrow, and use much which was well known and used before." Emerson v. Davies, 8 F.Cas. 615, 619 (No. 4,436) (CCD Mass.1845). Similarly, Lord Ellenborough expressed the inherent tension in the need simultaneously to protect copyrighted material and to allow others to build upon it when he wrote, "while I shall think myself bound to secure every man in the enjoyment of his copy-right, one must not put manacles upon science." *576 Carey v. Kearsley, 4 Esp. 168, 170, 170 Eng.Rep. 679, 681 (K.B.1803). In copyright cases brought under the Statute of Anne of 1710, [FN6] English courts held that in some instances "fair abridgements" would**1170 not infringe an author's rights, see W. Patry, The Fair Use Privilege in Copyright Law 6-17 (1985) (hereinafter Patry); Leval, Toward a Fair Use Standard, 103 Harv.L.Rev. 1105 (1990) (hereinafter Leval), and although the First Congress enacted our initial copyright statute, Act of May 31, 1790, 1 Stat. 124, without any explicit reference to "fair use," as it later came to be known, [FN7] the doctrine was recognized by the American courts nonetheless.

FN4. Section 106 provides in part:

"Subject to sections 107 through 120, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following:

"(1) to reproduce the copyrighted work in copies or phonorecords;

"(2) to prepare derivative works based upon the copyrighted work;

"(3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending...."

A derivative work is defined as one "based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship, is a 'derivative work.' " 17 U.S.C. § 101. 2 Live Crew concedes that it is not entitled to a compulsory license under § 115 because its arrangement changes "the basic melody or fundamental character" of the original. § 115(a)(2).

FN5. The exclusion of facts and ideas from copyright protection serves that goal as well. See § 102(b) ("In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery ..."); Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340, 359, 111 S.Ct. 1282, 1294, 113 L.Ed.2d 358 (1991) ("[F]acts contained in existing works may be freely copied"); Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 547, 105 S.Ct. 2218, 2223, 85 L.Ed.2d 588 (1985) (copyright owner's rights exclude facts and ideas, and fair use).

FN6. An Act for the Encouragement of Learning, 8 Anne, ch. 19.

FN7. Patry 27, citing Lawrence v. Dana, 15 F.Cas. 26, 60 (No. 8,136) (CCD Mass.1869).

[1] In Folsom v. Marsh, 9 F.Cas. 342 (No. 4,901) (CCD Mass. 1841), Justice Story distilled the essence of law and methodology from the earlier cases: "look to the nature and objects of the selections made, the quantity and value of the materials used, and the degree in which the use may prejudice the sale, or diminish the profits, or supersede the objects, of the original work." Id., at 348. Thus expressed, fair use remained exclusively judge- made doctrine until the passage of the 1976 Copyright Act, in which Justice Story's summary is discernible: [FN8]

FN8. Leval 1105. For a historical account of the development of the fair use doctrine, see Patry 1-64.

"§ 107. Limitations on exclusive rights: Fair use

"Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular*577case is a fair use the factors to be considered shall include--

"(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

"(2) the nature of the copyrighted work;

"(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

"(4) the effect of the use upon the potential market for or value of the copyrighted work.

"The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors." 17 U.S.C. § 107 (1988 ed. and Supp. IV).

Congress meant § 107 "to restate the present judicial doctrine of fair use, not to change, narrow, or enlarge it in any way" and intended that courts continue the common-law tradition of fair use adjudication. H.R.Rep. No. 94- 1476, p. 66 (1976) (hereinafter House Report); S.Rep. No. 94-473, p. 62 (1975) U.S.Code Cong. & Admin.News 1976, pp. 5659, 5679 (hereinafter Senate Report). The fair use doctrine thus "permits [and requires] courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that law is designed to foster." Stewart v. Abend, 495 U.S. 207, 236, 110 S.Ct. 1750, 1767, 109 L.Ed.2d 184 (1990) (internal quotation marks and citation omitted).

[2] The task is not to be simplified with bright-line rules, for the statute, like the doctrine it recognizes, calls for case-by-case analysis. Harper & Row, 471 U.S., at 560, 105 S.Ct., at 2230; Sony, 464 U.S., at 448, and n. 31, 104 S.Ct., at 792, & n. 31; House Report, pp. 65-66; Senate Report, p. 62. The text employs the terms "including" and "such as" in the preamble paragraph to indicate the "illustrative and not limitative" function of the examples given, § 101; see Harper & Row, supra, 471 U.S., at 561, 105 S.Ct., at 2230, which thus provide only general guidance about the sorts of copying that courts and *578 Congress most commonly had found to be fair uses. [FN9] Nor may the four **1171 statutory factors be treated in isolation, one from another. All are to be explored, and the results weighed together, in light of the purposes of copyright. See Leval 1110-1111; Patry & Perlmutter, Fair Use Misconstrued: Profit, Presumptions, and Parody, 11 Cardozo Arts & Ent.L.J. 667, 685-687 (1993) (hereinafter Patry & Perlmutter). [FN10]

FN9. See Senate Report, p. 62 ("[W]hether a use referred to in the first sentence of section 107 is a fair use in a particular case will depend upon the application of the determinative factors").

FN10. Because the fair use enquiry often requires close questions of judgment as to the extent of permissible borrowing in cases involving parodies (or other critical works), courts may also wish to bear in mind that the goals of the copyright law, "to stimulate the creation and publication of edifying matter," Leval 1134, are not always best served by automatically granting injunctive relief when parodists are found to have gone beyond the bounds of fair use. See 17 U.S.C. § 502(a) (court "may ... grant ... injunctions on such terms as it may deem reasonable to prevent or restrain infringement") (emphasis added); Leval 1132 (while in the "vast majority of cases, [an injunctive] remedy is justified because most infringements are simple piracy," such cases are "worlds apart from many of those raising reasonable contentions of fair use" where "there may be a strong public interest in the publication of the secondary work [and] the copyright owner's interest may be adequately protected by an award of damages for whatever infringement is found"); Abend v. MCA, Inc., 863 F.2d 1465, 1479 (CA9 1988) (finding "special circumstances" that would cause "great injustice" to defendants and "public injury" were injunction to issue), aff'd sub nom. Stewart v. Abend, 495 U.S. 207, 110 S.Ct. 1750, 109 L.Ed.2d 184 (1990).

A

[3][4] The first factor in a fair use enquiry is "the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes." § 107(1). This factor draws on Justice Story's formulation, "the nature and objects of the selections made." Folsom v. Marsh, supra, at 348. The enquiry here may be guided by the examples given in the preamble to § 107, looking to whether the use is for criticism, or comment, or news reporting, *579 and the like, see § 107. The central purpose of this investigation is to see, in Justice Story's words, whether the new work merely "supersede[s] the objects" of the original creation, Folsom v. Marsh, supra, at 348; accord, Harper & Row, supra, 471 U.S., at 562, 105 S.Ct., at 2231 ("supplanting" the original), or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message; it asks, in other words, whether and to what extent the new work is "transformative." Leval 1111. Although such transformative use is not absolutely necessary for a finding of fair use, Sony, supra, 464 U.S., at 455, n. 40, 104 S.Ct., at 795, n. 40, [FN11] the goal of copyright, to promote science and the arts, is generally furthered by the creation of transformative works. Such works thus lie at the heart of the fair use doctrine's guarantee of breathing space within the confines of copyright, see, e.g., Sony, supra, at 478-480, 104 S.Ct., at 807-808 (BLACKMUN, J., dissenting), and the more transformative the new work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use.

FN11. The obvious statutory exception to this focus on transformative uses is the straight reproduction of multiple copies for classroom distribution.

[5] This Court has only once before even considered whether parody may be fair use, and that time issued no opinion because of the Court's equal division. Benny v. Loew's Inc., 239 F.2d 532 (CA9 1956), aff'd sub nom. Columbia Broadcasting System, Inc. v. Loew's Inc., 356 U.S. 43, 78 S.Ct. 667, 2 L.Ed.2d 583 (1958). Suffice it to say now that parody has an obvious claim to transformative value, as Acuff-Rose itself does not deny. Like less ostensibly humorous forms of criticism, it can provide social benefit, by shedding light on an earlier work, and, in the process, creating a new one. We thus line up with the courts that have held that parody, like other comment or criticism, may claim fair use under § 107. See, e.g., Fisher v. Dees, 794 F.2d 432 (CA9 1986) ("When Sonny Sniffs Glue," a parody of "When Sunny Gets Blue," is fair use); Elsmere Music, Inc. v. National Broadcasting Co., 482 F.Supp. 741 *580 SDNY), aff'd, 623 F.2d 252 (CA2 1980) ("I Love Sodom," a "Saturday **1172 Night Live" television parody of "I Love New York," is fair use); see also House Report, p. 65; Senate Report, p. 61, U.S.Code Cong. & Admin.News 1976, pp. 5659, 5678 ("[U]se in a parody of some of the content of the work parodied" may be fair use).

[6] The germ of parody lies in the definition of the Greek parodeia, quoted in Judge Nelson's Court of Appeals dissent, as "a song sung alongside another." 972 F.2d, at 1440, quoting 7 Encyclopedia Britannica 768 (15th ed. 1975). Modern dictionaries accordingly describe a parody as a "literary or artistic work that imitates the characteristic style of an author or a work for comic effect or ridicule," [FN12] or as a "composition in prose or verse in which the characteristic turns of thought and phrase in an author or class of authors are imitated in such a way as to make them appear ridiculous." [FN13] For the purposes of copyright law, the nub of the definitions, and the heart of any parodist's claim to quote from existing material, is the use of some elements of a prior author's composition to create a new one that, at least in part, comments on that author's works. See, e.g., Fisher v. Dees, supra, at 437; MCA, Inc. v. Wilson, 677 F.2d 180, 185 (CA2 1981). If, on the contrary, the commentary has no critical bearing on the substance or style of the original composition, which the alleged infringer merely uses to get attention or to avoid the drudgery in working up something fresh, the claim to fairness in borrowing from another's work diminishes accordingly (if it does not vanish), and other factors, like the extent of its commerciality, loom larger. [FN14] Parody needs to mimic *581an original to make its point, and so has some claim to use the creation of its victim's (or collective victims') imagination, whereas satire can stand on its own two feet and so requires justification for the very act of borrowing. [FN15] See ibid.; Bisceglia, Parody and Copyright Protection: Turning the Balancing Act Into a Juggling Act, in ASCAP, Copyright Law Symposium, No. 34, p. 25 (1987).

FN12. American Heritage Dictionary 1317 (3d ed. 1992).

FN13. 11 Oxford English Dictionary 247 (2d ed. 1989).

FN14. A parody that more loosely targets an original than the parody presented here may still be sufficiently aimed at an original work to come within our analysis of parody. If a parody whose wide dissemination in the market runs the risk of serving as a substitute for the original or licensed derivatives (see infra at 1177-1179, discussing factor four), it is more incumbent on one claiming fair use to establish the extent of transformation and the parody's critical relationship to the original. By contrast, when there is little or no risk of market substitution, whether because of the large extent of transformation of the earlier work, the new work's minimal distribution in the market, the small extent to which it borrows from an original, or other factors, taking parodic aim at an original is a less critical factor in the analysis, and looser forms of parody may be found to be fair use, as may satire with lesser justification for the borrowing than would otherwise be required.

FN15. Satire has been defined as a work "in which prevalent follies or vices are assailed with ridicule," 14 Oxford English Dictionary, supra, at 500, or are "attacked through irony, derision, or wit," American Heritage Dictionary, supra, at 1604.

The fact that parody can claim legitimacy for some appropriation does not, of course, tell either parodist or judge much about where to draw the line. Like a book review quoting the copyrighted material criticized, parody may or may not be fair use, and petitioners' suggestion that any parodic use is presumptively fair has no more justification in law or fact than the equally hopeful claim that any use for news reporting should be presumed fair, see Harper & Row, 471 U.S., at 561, 105 S.Ct., at 2230. The Act has no hint of an evidentiary preference for parodists over their victims, and no workable presumption for parody could take account of the fact that parody often shades into satire when society is lampooned through its creative artifacts, or that a work may contain both parodic and nonparodic elements. Accordingly, parody, like any other use, has to work its way through the relevant factors, and be judged case by case, in light of the ends of the copyright law.

Here, the District Court held, and the Court of Appeals assumed, that 2 Live **1173 Crew's "Pretty Woman" contains parody, *582commenting on and criticizing the original work, whatever it may have to say about society at large. As the District Court remarked, the words of 2 Live Crew's song copy the original's first line, but then "quickly degenerat[e] into a play on words, substituting predictable lyrics with shocking ones ... [that] derisively demonstrat[e] how bland and banal the Orbison song seems to them." 754 F.Supp., at 1155 (footnote omitted). Judge Nelson, dissenting below, came to the same conclusion, that the 2 Live Crew song "was clearly intended to ridicule the white-bread original" and "reminds us that sexual congress with nameless streetwalkers is not necessarily the stuff of romance and is not necessarily without its consequences. The singers (there are several) have the same thing on their minds as did the lonely man with the nasal voice, but here there is no hint of wine and roses." 972 F.2d, at 1442. Although the majority below had difficulty discerning any criticism of the original in 2 Live Crew's song, it assumed for purposes of its opinion that there was some. Id., at 1435-1436, and n. 8.

[7] We have less difficulty in finding that critical element in 2 Live Crew's song than the Court of Appeals did, although having found it we will not take the further step of evaluating its quality. The threshold question when fair use is raised in defense of parody is whether a parodic character may reasonably be perceived. [FN16] Whether, going beyond that, parody is in good taste or bad does not and should not matter to fair use. As Justice Holmes explained, "[i]t would be a dangerous undertaking for persons trained only to the law to constitute themselves final judges of the worth of [a work], outside of the narrowest and most obvious limits. At *583 the one extreme some works of genius would be sure to miss appreciation. Their very novelty would make them repulsive until the public had learned the new language in which their author spoke." Bleistein v. Donaldson Lithographing Co., 188 U.S. 239, 251, 23 S.Ct. 298, 300, 47 L.Ed. 460 (1903) (circus posters have copyright protection); cf. Yankee Publishing Inc. v. News America Publishing, Inc., 809 F.Supp. 267, 280 (SDNY 1992) (Leval, J.) ("First Amendment protections do not apply only to those who speak clearly, whose jokes are funny, and whose parodies succeed") (trademark case).

FN16. The only further judgment, indeed, that a court may pass on a work goes to an assessment of whether the parodic element is slight or great, and the copying small or extensive in relation to the parodic element, for a work with slight parodic element and extensive copying will be more likely to merely "supersede the objects" of the original. See infra, at 1175-79, discussing factors three and four.

While we might not assign a high rank to the parodic element here, we think it fair to say that 2 Live Crew's song reasonably could be perceived as commenting on the original or criticizing it, to some degree. 2 Live Crew juxtaposes the romantic musings of a man whose fantasy comes true, with degrading taunts, a bawdy demand for sex, and a sigh of relief from paternal responsibility. The later words can be taken as a comment on the naivete of the original of an earlier day, as a rejection of its sentiment that ignores the ugliness of street life and the debasement that it signifies. It is this joinder of reference and ridicule that marks off the author's choice of parody from the other types of comment and criticism that traditionally have had a claim to fair use protection as transformative works. [FN17]

FN17. We note in passing that 2 Live Crew need not label their whole album, or even this song, a parody in order to claim fair use protection, nor should 2 Live Crew be penalized for this being its first parodic essay. Parody serves its goals whether labeled or not, and there is no reason to require parody to state the obvious (or even the reasonably perceived). See Patry & Perlmutter 716-717.

[8][9] The Court of Appeals, however, immediately cut short the enquiry into 2 Live Crew's fair use claim by confining its treatment of the first factor essentially to one relevant fact, the commercial nature of the use. The court then inflated the significance of this fact by applying a presumption ostensibly *584 **1174 culled from Sony, that "every commercial use of copyrighted material is presumptively ... unfair...." Sony, 464 U.S., at 451, 104 S.Ct., at 792. In giving virtually dispositive weight to the commercial nature of the parody, the Court of Appeals erred.

The language of the statute makes clear that the commercial or nonprofit educational purpose of a work is only one element of the first factor enquiry into its purpose and character. Section 107(1) uses the term "including" to begin the dependent clause referring to commercial use, and the main clause speaks of a broader investigation into "purpose and character." As we explained in Harper & Row, Congress resisted attempts to narrow the ambit of this traditional enquiry by adopting categories of presumptively fair use, and it urged courts to preserve the breadth of their traditionally ample view of the universe of relevant evidence. 471 U.S., at 561, 105 S.Ct. at 2230; House Report, p. 66, U.S.Code Cong. & Admin.News 1976, pp. 5659, 5679. Accordingly, the mere fact that a use is educational and not for profit does not insulate it from a finding of infringement, any more than the commercial character of a use bars a finding of fairness. If, indeed, commerciality carried presumptive force against a finding of fairness, the presumption would swallow nearly all of the illustrative uses listed in the preamble paragraph of § 107, including news reporting, comment, criticism, teaching, scholarship, and research, since these activities "are generally conducted for profit in this country." Harper & Row, supra, at 592, 105 S.Ct., at 2246 (Brennan, J., dissenting). Congress could not have intended such a rule, which certainly is not inferable from the common-law cases, arising as they did from the world of letters in which Samuel Johnson could pronounce that "[n]o man but a blockhead ever wrote, except for money." 3 Boswell's Life of Johnson 19 (G. Hill ed. 1934).

Sony itself called for no hard evidentiary presumption. There, we emphasized the need for a "sensitive balancing of interests," 464 U.S., at 455, n. 40, 104 S.Ct., at 795, n. 40, noted that Congress had "eschewed a rigid, bright-line approach to fair use," id., at *585 449, n. 31, 104 S.Ct., at 792, n. 31, and stated that the commercial or nonprofit educational character of a work is "not conclusive," id., at 448-449, 104 S.Ct., at 792, but rather a fact to be "weighed along with other[s] in fair use decisions," id., at 449, n. 32, 104 S.Ct. at 792, n. 32, (quoting House Report, p. 66) U.S.Code Cong. & Admin.News 1976, pp. 5659, 5679. The Court of Appeals's elevation of one sentence from Sony to a per se rule thus runs as much counter to Sony itself as to the long common-law tradition of fair use adjudication. Rather, as we explained in Harper & Row, Sony stands for the proposition that the "fact that a publication was commercial as opposed to nonprofit is a separate factor that tends to weigh against a finding of fair use." 471 U.S., at 562, 105 S.Ct., at 2231. But that is all, and the fact that even the force of that tendency will vary with the context is a further reason against elevating commerciality to hard presumptive significance. The use, for example, of a copyrighted work to advertise a product, even in a parody, will be entitled to less indulgence under the first factor of the fair use enquiry than the sale of a parody for its own sake, let alone one performed a single time by students in school. See generally Patry & Perlmutter 679- 680; Fisher v. Dees, 794 F.2d, at 437; Maxtone-Graham v. Burtchaell, 803 F.2d 1253, 1262 (CA2 1986); Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510, 1522 (CA9 1992). [FN18]

FN18. Finally, regardless of the weight one might place on the alleged infringer's state of mind, compare Harper & Row, 471 U.S., at 562, 105 S.Ct., at 2231 (fair use presupposes good faith and fair dealing) (quotation marks omitted), with Folsom v. Marsh, 9 F.Cas. 342, 349 (No. 4,901) (CCD Mass.1841) (good faith does not bar a finding of infringement); Leval 1126-1127 (good faith irrelevant to fair use analysis), we reject Acuff-Rose's argument that 2 Live Crew's request for permission to use the original should be weighed against a finding of fair use. Even if good faith were central to fair use, 2 Live Crew's actions do not necessarily suggest that they believed their version was not fair use; the offer may simply have been made in a good-faith effort to avoid this litigation. If the use is otherwise fair, then no permission need be sought or granted. Thus, being denied permission to use a work does not weigh against a finding of fair use. See Fisher v. Dees, 794 F.2d 432, 437 (CA9 1986).

**1175 *586 B

[10] The second statutory factor, "the nature of the copyrighted work," § 107(2), draws on Justice Story's expression, the "value of the materials used." Folsom v. Marsh, 9 F.Cas., at 348. This factor calls for recognition that some works are closer to the core of intended copyright protection than others, with the consequence that fair use is more difficult to establish when the former works are copied. See, e.g., Stewart v. Abend, 495 U.S., at 237-238, 110 S.Ct., at 1768-1769 (contrasting fictional short story with factual works); Harper & Row, 471 U.S., at 563-564, 105 S.Ct., at 2231-2233 (contrasting soon-to-be-published memoir with published speech); Sony, 464 U.S., at 455, n. 40, 104 S.Ct., at 792, n. 40 (contrasting motion pictures with news broadcasts); Feist, 499 U.S., at 348-351, 111 S.Ct., at 1289-1291 (contrasting creative works with bare factual compilations); 3 M. Nimmer & D. Nimmer, Nimmer on Copyright § 13.05[A][2] (1993) (hereinafter Nimmer); Leval 1116. We agree with both the District Court and the Court of Appeals that the Orbison original's creative expression for public dissemination falls within the core of the copyright's protective purposes. 754 F.Supp., at 1155-1156; 972 F.2d, at 1437. This fact, however, is not much help in this case, or ever likely to help much in separating the fair use sheep from the infringing goats in a parody case, since parodies almost invariably copy publicly known, expressive works.

C

[11] The third factor asks whether "the amount and substantiality of the portion used in relation to the copyrighted work as a whole," § 107(3) (or, in Justice Story's words, "the quantity and value of the materials used," Folsom v. Marsh, supra, at 348) are reasonable in relation to the purpose of the copying. Here, attention turns to the persuasiveness of a parodist's justification for the particular copying done, and the enquiry will harken back to the first of the statutory factors, for, as in prior cases, we recognize that the extent of permissible copying varies with the purpose and character *587 of the use. See Sony, supra, 464 U.S., at 449-450, 104 S.Ct., at 792-793 (reproduction of entire work "does not have its ordinary effect of militating against a finding of fair use" as to home videotaping of television programs); Harper & Row, supra, 471 U.S., at 564, 105 S.Ct., at 2232 ("[E]ven substantial quotations might qualify as fair use in a review of a published work or a news account of a speech" but not in a scoop of a soon-to- be-published memoir). The facts bearing on this factor will also tend to address the fourth, by revealing the degree to which the parody may serve as a market substitute for the original or potentially licensed derivatives. See Leval 1123.

The District Court considered the song's parodic purpose in finding that 2 Live Crew had not helped themselves overmuch. 754 F.Supp., at 1156-1157. The Court of Appeals disagreed, stating that "[w]hile it may not be inappropriate to find that no more was taken than necessary, the copying was qualitatively substantial.... We conclude that taking the heart of the original and making it the heart of a new work was to purloin a substantial portion of the essence of the original." 972 F.2d, at 1438.

The Court of Appeals is of course correct that this factor calls for thought not only about the quantity of the materials used, but about their quality and importance, too. In Harper & Row, for example, the Nation had taken only some 300 words out of President Ford's memoirs, but we signaled the significance of the quotations in finding them to amount to "the heart of the book," the part most likely to be newsworthy and important in licensing serialization. 471 U.S., at 564-566, 568, 105 S.Ct., at 2232-2234, 2234 (internal quotation marks omitted). We also agree with the Court of Appeals that whether "a substantial portion of the infringing work **1176was copied verbatim" from the copyrighted work is a relevant question, see id., at 565, 105 S.Ct., at 2232, for it may reveal a dearth of transformative character or purpose under the first factor, or a greater likelihood of market harm under the fourth; a work composed primarily of an original, particularly its heart, with little added or changed, *588 is more likely to be a merely superseding use, fulfilling demand for the original.

Where we part company with the court below is in applying these guides to parody, and in particular to parody in the song before us. Parody presents a difficult case. Parody's humor, or in any event its comment, necessarily springs from recognizable allusion to its object through distorted imitation. Its art lies in the tension between a known original and its parodic twin. When parody takes aim at a particular original work, the parody must be able to "conjure up" at least enough of that original to make the object of its critical wit recognizable. See, e.g., Elsmere Music, 623 F.2d, at 253, n. 1; Fisher v. Dees, 794 F.2d, at 438-439. What makes for this recognition is quotation of the original's most distinctive or memorable features, which the parodist can be sure the audience will know. Once enough has been taken to assure identification, how much more is reasonable will depend, say, on the extent to which the song's overriding purpose and character is to parody the original or, in contrast, the likelihood that the parody may serve as a market substitute for the original. But using some characteristic features cannot be avoided.

[12] We think the Court of Appeals was insufficiently appreciative of parody's need for the recognizable sight or sound when it ruled 2 Live Crew's use unreasonable as a matter of law. It is true, of course, that 2 Live Crew copied the characteristic opening bass riff (or musical phrase) of the original, and true that the words of the first line copy the Orbison lyrics. But if quotation of the opening riff and the first line may be said to go to the "heart" of the original, the heart is also what most readily conjures up the song for parody, and it is the heart at which parody takes aim. Copying does not become excessive in relation to parodic purpose merely because the portion taken was the original's heart. If 2 Live Crew had copied a significantly less memorable part of the original, it is difficult to see how its parodic character *589 would have come through. See Fisher v. Dees, supra, at 439.

[13] This is not, of course, to say that anyone who calls himself a parodist can skim the cream and get away scot free. In parody, as in news reporting, see Harper & Row, supra, context is everything, and the question of fairness asks what else the parodist did besides go to the heart of the original. It is significant that 2 Live Crew not only copied the first line of the original, but thereafter departed markedly from the Orbison lyrics for its own ends. 2 Live Crew not only copied the bass riff and repeated it, [FN19] but also produced otherwise distinctive sounds, interposing "scraper" noise, overlaying the music with solos in different keys, and altering the drum beat. See 754 F.Supp., at 1155. This is not a case, then, where "a substantial portion" of the parody itself is composed of a "verbatim" copying of the original. It is not, that is, a case where the parody is so insubstantial, as compared to the copying, that the third factor must be resolved as a matter of law against the parodists.

FN19. This may serve to heighten the comic effect of the parody, as one witness stated, App. 32a, Affidavit of Oscar Brand; see also Elsmere Music, Inc. v. National Broadcasting Co., 482 F.Supp. 741, 747 (SDNY 1980) (repetition of "I Love Sodom"), or serve to dazzle with the original's music, as Acuff-Rose now contends.

Suffice it to say here that, as to the lyrics, we think the Court of Appeals correctly suggested that "no more was taken than necessary," 972 F.2d, at 1438, but just for that reason, we fail to see how the copying can be excessive in relation to its parodic purpose, even if the portion taken is the original's "heart." As to the music, we express no opinion whether repetition of the bass riff is excessive copying, and we remand to permit **1177 evaluation of the amount taken, in light of the song's parodic purpose and character, its transformative elements, and considerations of the potential for market substitution sketched more fully below.

*590 D

[14] The fourth fair use factor is "the effect of the use upon the potential market for or value of the copyrighted work." § 107(4). It requires courts to consider not only the extent of market harm caused by the particular actions of the alleged infringer, but also "whether unrestricted and widespread conduct of the sort engaged in by the defendant ... would result in a substantially adverse impact on the potential market" for the original. Nimmer § 13.05[A] [4], p. 13-102.61 (footnote omitted); accord, Harper & Row, 471 U.S., at 569, 105 S.Ct., at 2235; Senate Report, p. 65; Folsom v. Marsh, 9 F.Cas., at 349. The enquiry "must take account not only of harm to the original but also of harm to the market for derivative works." Harper & Row, supra, 471 U.S. at 568, 105 S.Ct., at 2234.

[15] Since fair use is an affirmative defense, [FN20] its proponent would have difficulty carrying the burden of demonstrating fair use without favorable evidence about relevant markets. [FN21] In moving for summary judgment, 2 Live Crew left themselves at just such a disadvantage when they failed to address the effect on the market for rap derivatives, and confined themselves to uncontroverted submissions that there was no likely effect on the market for the original. They did not, however, thereby subject themselves to the evidentiary presumption applied by the Court of Appeals. In assessing the likelihood of significant market harm, the Court of Appeals*591quoted from language in Sony that " '[i]f the intended use is for commercial gain, that likelihood may be presumed. But if it is for a noncommercial purpose, the likelihood must be demonstrated.' " 972 F.2d, at 1438, quoting Sony, 464 U.S., at 451, 104 S.Ct., at 104 S.Ct., at 793. The court reasoned that because "the use of the copyrighted work is wholly commercial, ... we presume that a likelihood of future harm to Acuff-Rose exists." 972 F.2d, at 1438. In so doing, the court resolved the fourth factor against 2 Live Crew, just as it had the first, by applying a presumption about the effect of commercial use, a presumption which as applied here we hold to be error.

FN20. Harper & Row, 471 U.S., at 561, 105 S.Ct., at 2230; H.R.Rep. No. 102-836, p. 3, n. 3 (1992).

FN21. Even favorable evidence, without more, is no guarantee of fairness. Judge Leval gives the example of the film producer's appropriation of a composer's previously unknown song that turns the song into a commercial success; the boon to the song does not make the film's simple copying fair. Leval 1124, n. 84. This factor, no less than the other three, may be addressed only through a "sensitive balancing of interests." Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 455, n. 40, 104 S.Ct. 774, 795, n. 40, 78 L.Ed.2d 574 (1984). Market harm is a matter of degree, and the importance of this factor will vary, not only with the amount of harm, but also with the relative strength of the showing on the other factors.

No "presumption" or inference of market harm that might find support in Sony is applicable to a case involving something beyond mere duplication for commercial purposes. Sony's discussion of a presumption contrasts a context of verbatim copying of the original in its entirety for commercial purposes, with the noncommercial context of Sony itself (home copying of television programming). In the former circumstances, what Sony said simply makes common sense: when a commercial use amounts to mere duplication of the entirety of an original, it clearly "supersede[s] the objects," Folsom v. Marsh, supra, at 348, of the original and serves as a market replacement for it, making it likely that cognizable market harm to the original will occur. Sony, supra, 464 U.S., at 451, 104 S.Ct., at 793. But when, on the contrary, the second use is transformative, market substitution is at least less certain, and market harm may not be so readily inferred. Indeed, as to parody pure and simple, it is more likely that the new work will not affect the market for the original in a way cognizable under this factor, that is, by acting as a substitute for it ("supersed[ing] **1178[its] objects"). See Leval 1125; Patry & Perlmutter 692, 697-698. This is so because the parody and the original usually serve different market functions. Bisceglia, ASCAP, Copyright Law Symposium, No. 34, at 23.

[16] We do not, of course, suggest that a parody may not harm the market at all, but when a lethal parody, like a scathing *592 theater review, kills demand for the original, it does not produce a harm cognizable under the Copyright Act. Because "parody may quite legitimately aim at garroting the original, destroying it commercially as well as artistically," B. Kaplan, An Unhurried View of Copyright 69 (1967), the role of the courts is to distinguish between "[b]iting criticism [that merely] suppresses demand [and] copyright infringement[, which] usurps it." Fisher v. Dees, 794 F.2d, at 438.

This distinction between potentially remediable displacement and unremediable disparagement is reflected in the rule that there is no protectible derivative market for criticism. The market for potential derivative uses includes only those that creators of original works would in general develop or license others to develop. Yet the unlikelihood that creators of imaginative works will license critical reviews or lampoons of their own productions removes such uses from the very notion of a potential licensing market. "People ask ... for criticism, but they only want praise." S. Maugham, Of Human Bondage 241 (Penguin ed. 1992). Thus, to the extent that the opinion below may be read to have considered harm to the market for parodies of "Oh, Pretty Woman," see 972 F.2d, at 1439, the court erred. Accord, Fisher v. Dees, supra, at 437; Leval 1125; Patry & Perlmutter 688- 691. [FN22]

FN22. We express no opinion as to the derivative markets for works using elements of an original as vehicles for satire or amusement, making no comment on the original or criticism of it.

[17][18] In explaining why the law recognizes no derivative market for critical works, including parody, we have, of course, been speaking of the later work as if it had nothing but a critical aspect (i.e., "parody pure and simple," supra, at 1177). But the later work may have a more complex character, with effects not only in the arena of criticism but also in protectible markets for derivative works, too. In that sort of case, the law looks beyond the criticism to the other elements of the work, as it does here. 2 Live Crew's song comprises not *593 only parody but also rap music, and the derivative market for rap music is a proper focus of enquiry, see Harper & Row, supra, 471 U.S., at 568, 105 S.Ct., at 2234; Nimmer § 13.05 [B]. Evidence of substantial harm to it would weigh against a finding of fair use, [FN23] because the licensing of derivatives is an important economic incentive to the creation of originals. See 17 U.S.C. § 106(2) (copyright owner has rights to derivative works). Of course, the only harm to derivatives that need concern us, as discussed above, is the harm of market substitution. The fact that a parody may impair the market for derivative uses by the very effectiveness of its critical commentary is no more relevant under copyright than the like threat to the original market. [FN24]

FN23. See Nimmer § 13.05[A][4], p. 13-102.61 ("a substantially adverse impact on the potential market"); Leval 1125 ("reasonably substantial" harm); Patry & Perlmutter 697-698 (same).

FN24. In some cases it may be difficult to determine whence the harm flows. In such cases, the other fair use factors may provide some indicia of the likely source of the harm. A work whose overriding purpose and character is parodic and whose borrowing is slight in relation to its parody will be far less likely to cause cognizable harm than a work with little parodic content and much copying.

[19] Although 2 Live Crew submitted uncontroverted affidavits on the question of market harm to the original, neither they, nor Acuff-Rose, introduced evidence or affidavits addressing the likely effect of 2 Live Crew's parodic rap song on the market for a nonparody, rap version of "Oh, Pretty Woman." And while Acuff-Rose would have us find evidence of a rap market in the very facts that 2 Live Crew recorded a rap parody of "Oh, Pretty Woman" and another rap group sought a license to record a rap derivative,**1179there was no evidence that a potential rap market was harmed in any way by 2 Live Crew's parody, rap version. The fact that 2 Live Crew's parody sold as part of a collection of rap songs says very little about the parody's effect on a market for a rap version of the original, either of the music alone or of the music with its lyrics. The District Court essentially passed*594on this issue, observing that Acuff-Rose is free to record "whatever version of the original it desires," 754 F.Supp., at 1158; the Court of Appeals went the other way by erroneous presumption. Contrary to each treatment, it is impossible to deal with the fourth factor except by recognizing that a silent record on an important factor bearing on fair use disentitled the proponent of the defense, 2 Live Crew, to summary judgment. The evidentiary hole will doubtless be plugged on remand.

III

It was error for the Court of Appeals to conclude that the commercial nature of 2 Live Crew's parody of "Oh, Pretty Woman" rendered it presumptively unfair. No such evidentiary presumption is available to address either the first factor, the character and purpose of the use, or the fourth, market harm, in determining whether a transformative use, such as parody, is a fair one. The court also erred in holding that 2 Live Crew had necessarily copied excessively from the Orbison original, considering the parodic purpose of the use. We therefore reverse the judgment of the Court of Appeals and remand the case for further proceedings consistent with this opinion.

It is so ordered.

APPENDIX A TO OPINION OF THE COURT

"Oh, Pretty Woman" by Roy Orbison and William Dees

Pretty Woman, walking down the street,

Pretty Woman, the kind I like to meet,

Pretty Woman, I don't believe you, you're not the truth,

No one could look as good as you

Mercy

Pretty Woman, won't you pardon me,

Pretty Woman, I couldn't help but see,

*595 Pretty Woman, that you look lovely as can be

Are you lonely just like me?

Pretty Woman, stop a while,

Pretty Woman, talk a while,

Pretty Woman give your smile to me

Pretty Woman, yeah, yeah, yeah

Pretty Woman, look my way,

Pretty Woman, say you'll stay with me

'Cause I need you, I'll treat you right

Come to me baby, Be mine tonight

Pretty Woman, don't walk on by,

Pretty Woman, don't make me cry,

Pretty Woman, don't walk away,

Hey, O.K.

If that's the way it must be, O.K.

I guess I'll go on home, it's late

There'll be tomorrow night, but wait!

What do I see

Is she walking back to me?

Yeah, she's walking back to me!

Oh, Pretty Woman.

APPENDIX B TO OPINION OF THE COURT

"Pretty Woman" as Recorded by 2 Live Crew

Pretty woman walkin' down the street

Pretty woman girl you look so sweet

Pretty woman you bring me down to that knee

Pretty woman you make me wanna beg please

Oh, pretty woman

Big hairy woman you need to shave that stuff

Big hairy woman you know I bet it's tough

Big hairy woman all that hair it ain't legit

*596 'Cause you look like 'Cousin It'

Big hairy woman

**1180 Bald headed woman girl your hair won't grow

Bald headed woman you got a teeny weeny afro

Bald headed woman you know your hair could look nice

Bald headed woman first you got to roll it with rice

Bald headed woman here, let me get this hunk of biz for ya

Ya know what I'm saying you look better than rice a roni

Oh bald headed woman

Big hairy woman come on in

And don't forget your bald headed friend

Hey pretty woman let the boys

Jump in

Two timin' woman girl you know you ain't right

Two timin' woman you's out with my boy last night

Two timin' woman that takes a load off my mind

Two timin' woman now I know the baby ain't mine

Oh, two timin' woman

Oh pretty woman

Justice KENNEDY, concurring.

I agree that remand is appropriate and join the opinion of the Court, with these further observations about the fair use analysis of parody.

The common-law method instated by the fair use provision of the copyright statute, 17 U.S.C. § 107 (1988 ed. and Supp. IV), presumes that rules will emerge from the course of decisions. I agree that certain general principles are now discernible to define the fair use exception for parody. One of these rules, as the Court observes, is that parody may qualify as fair use regardless of whether it is published or performed*597for profit. Ante, at 1178. Another is that parody may qualify as fair use only if it draws upon the original composition to make humorous or ironic commentary about that same composition. Ante, at 1172. It is not enough that the parody use the original in a humorous fashion, however creative that humor may be. The parody must target the original, and not just its general style, the genre of art to which it belongs, or society as a whole (although if it targets the original, it may target those features as well). See Rogers v. Koons, 960 F.2d 301, 310 (CA2 1992) ("[T]hough the satire need not be only of the copied work and may ... also be a parody of modern society, the copied work must be, at least in part, an object of the parody"); Fisher v. Dees, 794 F.2d 432, 436 (CA9 1986) ("[A] humorous or satiric work deserves protection under the fair-use doctrine only if the copied work is at least partly the target of the work in question"). This prerequisite confines fair use protection to works whose very subject is the original composition and so necessitates some borrowing from it. See MCA, Inc. v. Wilson, 677 F.2d 180, 185 (CA2 1981) ("[I]f the copyrighted song is not at least in part an object of the parody, there is no need to conjure it up"); Bisceglia, Parody and Copyright Protection: Turning the Balancing Act Into a Juggling Act, in ASCAP, Copyright Law Symposium, No. 34, pp. 23-29 (1987). It also protects works we have reason to fear will not be licensed by copyright holders who wish to shield their works from criticism. See Fisher, supra, at 437 ("Self-esteem is seldom strong enough to permit the granting of permission even in exchange for a reasonable fee"); Posner, When Is Parody Fair Use?, 21 J. Legal Studies 67, 73 (1992) ("There is an obstruction when the parodied work is a target of the parodist's criticism, for it may be in the private interest of the copyright owner, but not in the social interest, to suppress criticism of the work") (emphasis deleted).

If we keep the definition of parody within these limits, we have gone most of the way towards satisfying the four-factor *598 fair use test in § 107. The first factor (the purpose and character of use) itself concerns the definition of parody. The second factor (the nature of the copyrighted work) adds little to the first, since "parodies almost invariably **1181 copy publicly known, expressive works." Ante, at 1175. The third factor (the amount and substantiality of the portion used in relation to the whole) is likewise subsumed within the definition of parody. In determining whether an alleged parody has taken too much, the target of the parody is what gives content to the inquiry. Some parodies, by their nature, require substantial copying. See Elsmere Music, Inc. v. National Broadcasting Co., 623 F.2d 252 (CA2 1980) (holding that "I Love Sodom" skit on "Saturday Night Live" is legitimate parody of the "I Love New York" campaign). Other parodies, like Lewis Carroll's "You Are Old, Father William," need only take parts of the original composition. The third factor does reinforce the principle that courts should not accord fair use protection to profiteers who do no more than add a few silly words to someone else's song or place the characters from a familiar work in novel or eccentric poses. See, e.g., Walt Disney Productions v. Air Pirates, 581 F.2d 751 (CA9 1978); DC Comics Inc. v. Unlimited Monkey Business, Inc., 598 F.Supp. 110 (ND Ga.1984). But, as I believe the Court acknowledges, ante, at 1176-77, it is by no means a test of mechanical application. In my view, it serves in effect to ensure compliance with the targeting requirement.


65 USLW 2334,

1997 Copr.L.Dec. P 27,623,

40 U.S.P.Q.2d 1569,

24 Media L. Rep. 2473

(Cite as: 1996 WL 633131 (E.D.Va.))

RELIGIOUS TECHNOLOGY CENTER, Plaintiff, v. Arnaldo Pagliarina LERMA, Defendant.

CIV.A. No. 95-1107-A.

United States District Court, E.D. Virginia,

Alexandria Division.

Oct. 4, 1996.

MEMORANDUM OPINION ON RELIGIOUS TECHNOLOGY CENTER'S AND ARNALDO P. LERMA'S

MOTIONS FOR SUMMARY JUDGMENT

BRINKEMA, District Judge.

*1 This matter comes before the Court on plaintiff Religious Technology Center's ("RTC") Motion for Summary Judgment for Copyright Infringement Against Defendant Lerma ("Lerma"). Also under consideration is defendant Arnaldo P. Lerma's (Cross-) Motion for Summary Judgment and/or to Dismiss. Both parties seek final resolution of the allegation that Lerma infringed RTC's copyright when he copied to his computer and/or posted to the Internet sections of sacred and properly copyrighted documents belonging to the Church of Scientology.

Summary judgment is appropriate when the record shows that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986). In ruling on such motions, the court must construe the facts and all inferences drawn from those facts in favor of the non-moving party. Charbonnages de France v. Smith, 597 F.2d 406, 414 (4th Cir. 1979).

Based upon the arguments tendered in the briefs and at the hearing, as well as the mass of evidence in this substantial record, the Court finds that Lerma infringed RTC's copyright and that summary judgment should be entered in favor of RTC and against Lerma.

History of the Case

The dispute in this case surrounds Lerma's acquisition and publication on the Internet of texts that the Church of Scientology considers sacred and protects heavily from unauthorized disclosure. Founded by L. Ron Hubbard, the Scientology religion attempts to explain the origin of negative spiritual forces in the world and advances techniques for improving one's own spiritual well-being. Scientologists believe that most human problems can be traced to lingering spirits of an extraterrestrial people massacred by their ruler, Xenu, over 75 million years ago. These spirits attach themselves by "clusters" to individuals in the contemporary world, causing spiritual harm and negatively influencing the lives of their hosts.

The texts at issue, the "Advanced Technology" or the "Operating Thetan" Documents ("OT Documents"), were written by founder Hubbard and allegedly provide a detailed program for warding off these evil influences through the creation of "free zones." The OT Documents outline a process that must be executed precisely according to the procedures laid out by Hubbard and under the guidance of an assisting church official in order to be efficacious.

Church doctrine teaches that improper disclosure of the OT Documents, both to non-Scientologists and even to church members if done prematurely, prevents achievement of the desired effect. Unauthorized disclosure also risks further harm of global proportions. See Religious Technology Center v. Lerma, 908 F.Supp 1353, 1358 (E.D.Va. 1995). Hubbard explicitly directed that the OT Documents be released only in strict accordance with his guidelines, and that they remain otherwise secret and secure.

Consequently, the church has charged RTC, the plaintiff in this case, with securing the sacred texts and aggressively policing any breaches in security or unauthorized disclosures that may occur. RTC has enacted a comprehensive protection plan that includes locked vaults, numerous guards, key cards, and signed nondisclosure statements by all church members. RTC has also been relentless in tracking down suspected offenders and vigorously pursuing legal remedies against them.

*2 This litigation initially consisted of both trade secret and copyright infringement counts against multiple defendants, including Lerma, Digital Gateway Systems (Lerma's access provider to the Internet), The Washington Post (which published a story about the case which quoted fractions of the OT Documents), Marc Fisher (a Washington Post reporter), and Richard Leiby (a Washington Post reporter). However, the Court earlier dismissed the trade secrets count as to all defendants and the copyright infringement count as to the Washington Post and its reporters. RTC voluntarily dismissed its claims against Digital Gateway Systems. Therefore, the only issue remaining in the case is RTC's copyright infringement claim against defendant Lerma. Even that issue has been progressively honed, with RTC moving for summary judgment on only a subset of the copyrighted works originally contested in RTC's complaint. [FN1]

FN1. RTC initially alleged that Lerma infringed the copyright of multiple works from several different series or collections of the OT Documents. With its summary judgment motion, RTC now seeks a ruling only on materials excerpted from "OT II", "OT III", "Power", "NOTs", and "the Sunshine Rundown," referred to all the in this motion as the "Works." The Second Amended Complaint contained additional allegations regarding infringement of other materials from "OT I", "OT IV", "OT V", "OT VI", and "OT VIII", however these allegations are not included in RTC's instant Motion for Summary Judgment.

Bases for Copyright Infringement

To establish copyright infringement, two elements must be proven: (1) ownership of a valid copyright, and (2) unauthorized copying of constituent elements of the copyrighted work. Feist Publications, Inc. v. Rural Telephone Service Company, Inc., 499 U.S. 340, 361 (1991). Copyright infringement occurs when there is "substantial unauthorized copying of protected materials from a copyrighted work." Harry G. Henn, Henn on Copyright Law, §27.6 (1991).

The first element is effectively uncontested by Lerma. Filed in conjunction with RTC's motion for summary judgment was a set of exhibits (the "G-Series Exhibits") containing 33 comparisons of RTC's copyrighted works and the "copies" allegedly in Lerma's possession and/or posted by him to the Internet. Each of these exhibits includes the written segment allegedly copied by Lerma, the corresponding Hubbard original, a certificate of copyright registration, a certified photocopy of the masked work on file at the Copyright Office of the United States, and a full (i.e. unmasked) "translation" of that photocopy.

Lerma does not dispute that Hubbard followed the appropriate procedures in obtaining the maximum copyright protection of his original works and that these same Works have now been produced in the G-Series Exhibits with the appropriate validating documentation. Nor does he dispute that RTC properly owns the copyright interest in these Works.

The Idea/Expression Dichotomy

Lerma launches a collateral attack on the appropriateness of the copyright. Distinguishing between idea and expression, Lerma argues that material contained in the Works is "uncopyrightable." Copyright law promotes the advancement of human knowledge and thought by providing limited legal (and therefore economic) protection to an author's original expression. The author's temporary monopoly, however, does not include the ideas contained within his work. As stated by the Third Circuit, "the purpose of copyright law is to create the most efficient and productive balance between protection (incentive) and dissemination of information, to promote learning, culture and development." Whelan Associates v. Jaslow Dental Laboratory, 797 F.2d 1222, 1235 (3rd Cir. 1986). These intentions have spawned the idea/expression dichotomy in copyright law, protecting the latter while still permitting access to the former. "The [Copyright] Act is thus able to protect authors without impeding the public's access to that information which gives meaning to our society's highly valued freedom of expression." Harper & Row Publishers, Inc. v. Nation Enterprises, 723 F.2d 195, 202 (2nd Cir. 1983).

*3 This idea/expression distinction is codified under 17 U.S.C. §102(b) which states:

In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.

Courts have therefore held that wherever an author's expression of an idea is closely intertwined with the idea itself, the expression has "merged" with the idea and is therefore uncopyrightable. Under this "merger doctrine," where the author's ideas and procedures can be properly expressed in so few ways that "protection of the expression would effectively accord protection to the idea itself," Kregos v. Associated Press, 937 F.2d 700, 705 (2nd Cir. 1991), courts have found the expression not copyrightable. Copyrighting the expression in these instances would effectively prohibit discussion and analysis of the idea itself and grant the owner a monopoly on all uses of the very concept.

Lerma argues that this merger doctrine applies and that RTC's claim of copyright protection is therefore invalid. He also argues that Hubbard describes the OT Documents as primarily factual, and he insists that their contents must be followed exactly as written. Under the merger doctrine, even if Hubbard had followed all procedural requirements, the Works would still be uncopyrightable if protecting the expression would effectively grant a monopoly on the idea itself.

Despite this argument, the Court finds that merger of idea and expression has not occurred in this case. The ideas and concepts of the Scientology religion can be discussed independently of the OT documents. This has been amply demonstrated in the voluminous record accompanying the case and in all parties' numerous briefs. Indeed, theological musings on the sources of (and remedies for) spiritual harm have dominated discussion about religion for centuries. Whether achieved through animal spirits, witches, demons, curses, Satan, angels, or "body thetans," spiritual healing is clearly not a concept inherently tied to the OT Documents.

To the extent that the OT Documents supply a technique or "process" for achieving spiritual well-being, their copyright arguably violates a strictly literal reading of §102(b). However, as RTC has argued, virtually all works convey to some extent ideas and processes that are uncopyrightable. See Hr'g, January 19, 1996, at 23 et seq. While such creations may contain "procedure[s], process[es], [or] system[s]", 17 U.S.C.A. §102(b), they are not thereby rendered de facto uncopyrightable. As an example, RTC cites programs which essentially describe a "process" but are nonetheless copyrightable. Other examples include cookbooks and automobile mechanics' repair manuals. Each of these documents purports to describe a precise method for achieving a desired end, whether it be the creation of a spinach souffle or the rebuilding of a defective carburetor. Hubbard's instructional directions for spiritual healing are no less-deserving of protection than the admittedly copyrightable "recipe" in a cookbook or copyrightable "repair steps" in a maintenance manual.

*4 Lerma attempts to distinguish the Works from these examples because the Works require specific, precise repetition of the exact text. While a recipe, repair instructions, or a computer program may permit some variation, Hubbard claims that the Works provide the only correct method for reaching complete spiritual health. If not followed exactly, the process will fail. However, literary works such as a poem or haiku and musical works such as a symphonic score possess the same quality -- the desired effect cannot be achieved without precise repetition. This does not make poems, haikus, and musical scores uncopyrightable, and it should likewise not preclude copyrightability of the Works. Denying copyright protection to RTC on this basis would rapidly destroy the protection and incentive for the likes of Wagner and Brahms -- an outcome that is most certainly contrary to the goals of copyright law.

The Court, therefore, finds the merger clause inapplicable to the Works.

Fair Use Defense

Lerma freely admits that he copied portions of the Works by downloading or scanning them into his computer and by posting segments of this material to the Internet. He argues that even if the works are copyrightable and copyrighted, this copying was lawful because it was "fair use."

In determining whether the use of a copyrighted work constitutes fair use, the Court must consider four factors:

1. the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

2. the nature of the copyrighted work;

3. the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

4. the effect of the use upon the potential market for or value of the copyrighted work.

17 U.S.C. §107. These four statutory factors may not be "treated in isolation, one from another. All are to be explored, and the results weighed together, in light of the purposes of copyright." Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 578 (1994).

Lerma urges us, when conducting the fair use analysis, to evaluate his actions in the special context of modern communication on the Internet. He describes the unique characteristics of computer interaction and argues for special treatment under copyright law. While the Internet does present a truly revolutionary advance, neither Congress nor the courts have afforded it unique status under the fair use standard of §107. The law of copyright has evolved with technological change, with each new technological advancement creating complicated questions of copyright interpretation and application. Nevertheless, the new technologies -- from television, to video cassette recorders, to digitized transmissions -- have been made to fit within the overall scheme of copyright law and to serve the ends which copyright was intended to promote. See Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417 (1984). The Internet is no exception, and postings on it must be judged in reference to the already flexible considerations which fair use affords.

*5 Purpose and Character of the Use: The first fair use factor is the purpose and character of the use made by the alleged infringer. 17 U.S.C. § 107(1). Lerma posits that his use of the Works falls within several of the classic fair use categories listed in the first paragraph of §107, namely, that his copying and posting of the Works constitutes "criticism", "comment", "news reporting", and "scholarship." "[T]here is a strong presumption that factor one favors the defendant if an allegedly infringing work fits the description of uses described in section 107." Wright v. Warner Books, Inc., 953 F.2d 731, 736 (2nd Cir. 1991).

Lerma argues that his Internet posting of the Fishman Declaration originated from publication of information in a California court record that was open to the public and which the court refused to seal. Lerma asserts that he merely gathered that information like a news reporter and then published it on the Internet to unveil for the Internet community the "foibles" of Scientology in the same spirit of the modern news expose.

This analogy fails. The full record clearly shows that Lerma's motives, unlike those of news reporters, were not neutral and that his postings were not done primarily "for public benefit." MCA, Inc. v. Wilson, 677 F.2d 180, 182 (2nd Cir. 1981). When judged in light of the degree of copying and the use to which the infringing material was ultimately put, Lerma stands in a position significantly different from the Washington Post and its employees earlier dismissed from this suit. Even if Lerma were a newspaper reporter, the mere fact that a copyrighted document was in a public court file in no respect destroys its copyright protection.

Lerma also describes himself as a dedicated researcher delving into the theory and scholarship of Scientology. He claims to be performing academic work of a "transformative" nature, providing materials which "add new value to public knowledge and understanding, thereby advancing the goals of copyright as set forth in the Constitution." Opp'n Br. at 24. That argument does not justify the wholesale copying and republication of copyrighted material. The degree of copying by Lerma, combined with the absence of commentary on most of his Internet postings, is inconsistent with the scholarship exception. Even assuming, arguendo, that Lerma's copying to his hard drive was done solely in the name of academic research, this does not end the fair use analysis. Such uses are only "presumptively" permissible; there is a limit to the extent of reproduction that can be undertaken even by the bona-fide researcher. See American Geophysical Union v. Texaco, Inc., 802 F.Supp. 1, 17 (S.D.N.Y. 1992), aff'd., 60 F.3d 913 (2nd Cir. 1994)(archival photocopying of scientific journals for internal use by for-profit research laboratory and is not fair use) See also Marcus v. Rowley, 695 F.2d 1171, 1176 (9th Cir. 1983) ("[W] holesale copying of copyrighted material precludes application of the fair use doctrine."), 3 Nimmer § 13.05[A] [3] (1996) ("[Generally] it may not constitute a fair use if the entire work is reproduced").

*6 Lerma argues that his "research" conducted via downloads from newsgroups on the Internet provides a particularly strong argument for fair use. Because newsgroup output is by its nature ephemeral, Lerma asserts that saving such postings for later review is indistinguishable from the temporary storage on a VCR tape that was upheld by the Supreme Court in Sony Corp. of America v. Universal Studios, Inc., 464 U.S. 417 (1984). Lerma's analogy fails because the "time-shifting" approved in Sony concerned the reproduction of television programs that were implicitly licensed at no charge to the viewer who then copied them for purposes of convenience. These critical factors are absent in the instant case. Lerma is not licensed to view or copy the Works, and his reproduction of the Works on his disc served purposes beyond convenience. The proper analogy of Lerma to Sony would be if the Sony defendant obtained an unauthorized copy of a television movie from a premium cable channel and then re-broadcast that movie on a public access channel, something that would be clearly prohibited.

It may be true that Lerma's intent in posting the Works was not "commercial" in the traditional sense. He was not in direct competition with the church, and he did not place a surcharge on, or receive any other "private commercial gain" from, the information contained within the Works. Under the fair use doctrine, commercial use of an allegedly infringing work is disfavored whereas noncommercial use is not. See Sony Corp., 464 U.S. at 449. Nonetheless, while there is no evidence that Lerma has profited directly from the postings, this factor alone is not dispositive of the fair use issue.

"[T]hough it is a significant factor, whether the profit element of the fair use calculus affects the ultimate determination of whether there is fair use depends on the totality of the factors considered; it is not itself controlling." Rogers v. Koons, 960 F.2d 301, 309 (2nd Cir. 1992). In viewing the totality of factors discussed above, the Court finds that the noncommercial character of Lerma's copying and posting does not outweigh Lerma's non-neutral and non-scholarly motives in publishing the Works.

Nature of the Copyrighted Work: The second factor for consideration under the fair use analysis is the nature of the copyrighted work. 17 U.S.C.A. § 107(2). "This factor calls for recognition that some works are closer to the core of intended protection than others, with the consequence that fair use is more difficult to establish when the former works are copied." Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 586 (1994).

In opposing RTC's Motion for Summary Judgment, Lerma relies upon two aspects of the Works which favor his position: 1) the factual vs. the creative nature of the Works, and 2) their publication status.

The fair use defense is broader with respect to factual works than to creative or literary works. "The law generally recognizes a greater need to disseminate factual works than works of fiction or fantasy." Harper & Row Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 563 (1985). Hubbard's works are difficult to classify in this respect and courts dealing with this issue have differed in their conclusion. As the Second Circuit stated in New Era Publications Int'l v. Carol Publishing Group, 904 F.2d 152, 158 (2nd Cir. 1989), cert. denied, 493 U.S. 1094 (1990), "reasonable people can disagree over how to classify Hubbard's works." In the case at bar, however, RTC has characterized the Works as training materials, stressing their utility over their creativity. The Court has previously resolved this question by holding that the Works are "intended to be informational rather than creative" and that a broader fair use approach is therefore appropriate in this regard. Religious Technology Center v. Lerma, 908 F.Supp. 1362, 1367 (E.D.Va. 1995).

*7 Lerma's second argument regarding the nature of the copyrighted Works pertains to their publication status. Courts have consistently found that "the scope of fair use is narrower with respect to unpublished works." New Era Publications v. Carol Publishing Group, 904 F.2d 152, 157 (2nd Cir. 1990) (quoting Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 564 (1985)). The Works in question clearly have not been "published." RTC has not released these materials to the public and does not plan to release them. Nevertheless, Lerma insists that for purposes of a fair use analysis the term "publication" means "whether the work has been widely disseminated or is widely available, regardless of technical 'publication'." Opp'n Br.at 41 (citing Harper & Row, 471 U.S. at 555)(emphasis in original). Because much of the materials which he copied and posted to the Internet were already available in an open court file or on the Internet, Lerma asserts that they are deserving of less protection because he has not usurped RTC's right to first publication.

Lerma's reliance upon the argument is not convincing. Although Harper & Row weighs the "de facto publication ... or dissemination" of a work in determining whether another's utilization of the material constitutes fair use, this only applies where the author has given "implied consent" through such action as performance or dissemination. 471 U.S. at 551. In those circumstances, the author has made the work publicly available and has implicitly invoked his right to first publication. The copyright owner is denied this opportunity when actions of a third party usurp the right to first publication, as happened both in Harper & Row and in this case. Posting without the owner's consent cannot constitute a "first publication" under fair use principles.

Lerma also argues that the unpublished status of the Works is entitled to even less weight because the RTC never intends to publish them. He claims that the "central purpose of distinguishing between disseminated and undisseminated works is to preserve for the author the commercial value of the right to first publication." Opp'n Br. at 44. Relying on Harper v. Row, Lerma suggests that where a copyright owner intends never to exploit the right of first publication, the need to protect that right diminishes and the scope of fair use correspondingly expands.

Lerma misreads his authorities on this point. Harper & Row clearly recognizes that "[t]he right of first publication encompasses [also] the choice whether to publish at all." 471 U.S. at 564. See also Salinger v. Random House, Inc., 811 F.2d 90, 98 (2nd Cir. 1987) (Potential harm to value of plaintiff's works "is not lessened by the fact that their author has disavowed any intention to publish them during his lifetime ... [h]e is entitled to protect his opportunity to sell his letters"). This approach is not illogical.

*8 Thus, while the factual nature of the Works weighs in Lerma's favor, the unpublished nature of the Works and RTC's intention to keep the Works unpublished weigh against him. As held in Harper & Row, 471 U.S. at 564, "[t]he fact that a work is unpublished is a critical element of its 'nature."' Unpublished works "normally enjoy complete protection against copying any protected expression." Salinger v. Random House, Inc., 811 F.2d 90, 97 (2nd Cir. 1987). On balance, the second fair use factor tips in favor of RTC.

Amount and Substantiality of Copying: The third factor addresses the amount and substantiality of the portion copied by the defendant in relation to the copyrighted work as a whole. 17 U.S.C. §107(3). "There are no absolute rules as to how much of a copyrighted work may be copied and still be considered a fair use." Maxtone-Graham v. Burtchaell, 803 F.2d 1253, 1263 (2nd Cir. 1986). This factor has both quantitative and qualitative components, so that courts have found a use to be unfair where the quoted materials formed a substantial percentage of the copyrighted work or where the quoted material was "essentially the heart of" the copyrighted work. New Era Publications v. Carol Publishing Group, 904 F.2d 152, 158 (2nd Cir. 1990)(citations omitted).

The parties dispute whether the segments excerpted by Lerma represent "the heart of" the Works under the qualitative component. The Court is unable to evaluate this component because many of the copyrighted materials are incomprehensible. However, because the quantitative analysis weighs so overwhelmingly in RTC's favor, it is not necessary to make this qualitative evaluation.

The 33 exhibits in RTC's G-Series Exhibits indicate extensive copying and posting. A majority of these 33 exhibits contain vertabim copying, as if Lerma obtained the copyrighted materials and summarily transferred them into cyberspace. In many cases, Lerma uploaded a complete, self-contained OT Document with a recognizable beginning, body, and end. Over two-thirds of the G-Series Exhibits represent virtually a total reproduction of the work on file at the Copyright Office.

The wholesale copying of copyrighted material often precludes the application of the fair use doctrine. Marcus v. Rowley, 695 F.2d 1171, 1176 (9th Cir. 1983)(citations omitted). Such blatant reproduction has been prohibited even in the context of educational instruction. See, e.g., Wihtol v. Crow, 309 F.2d 777, 780 (8th Cir. 1962) ("whatever may be the breadth of the doctrine of 'fair use', it is not conceivable to us that the copying of all, or substantially all, of a copyrighted song can be held to be a 'fair use' merely because the infringer had no intent to infringe"), Encyclopedia Britannica Educational Corp. v. Crooks, 447 F.Supp. 243 (W.D.N.Y. 1978) (although defendants were involved in noncommercial educational copying of films to promote science and education, the taping of entire copyrighted films was too excessive for the fair use defense to apply).

*9 Lerma opposes RTC's percentage calculations by arguing a different interpretation of what represents the "whole" copyrighted work as defined under §107(3). RTC has registered the OT Documents with the copyright office in batches as part of a series. Lerma argues that the "whole" work refers to the entire series listed on a registration certificate, while RTC argues that the term refers to each component of these copyrighted series. Thus, where RTC registered on one form the OT III collection of documents A, B, C, D, & E, Lerma asserts that all five documents constitute the "whole copyrighted work" for purposes of comparison, whereas RTC maintains that each subpart constitutes a "whole copyrighted work."

Whether or not the "whole copyrighted work" is viewed as the entire collection (as Lerma prefers) or as the individual works (as RTC prefers) is critical to the fair use assessment, and indeed may be the determining factor. Under RTC's interpretation, if Lerma copied document A in toto he performed a 100% copy. Under Lerma's interpretation, the same action amounts to copying only a small portion of a larger work. In this way Lerma maintains that he reproduced only 13 of 213 pages from OT II, 25 of 326 pages of OT III, 12 of 30 pages from "the Power," and 10 of 350 pages of the NOT's. Opp'n Br. at 47.

RTC's approach is supported by the Code of Federal Regulations, which states inter alia that the following shall be considered a "single work":

In the case of unpublished works: all copyrightable elements that are otherwise recognizable as self-contained works, and are combined in a single unpublished "collection."

37 C.F.R. §202.3(b)(3)(B). That subsection proceeds to list the factors to be used in determining whether a set of works can be considered a "collection," including:

1) are the elements assembled in an orderly form;

2) do they bear a single title identifying them as a whole

3) is the copyright claimant the same in each of the elements and in the collection as a whole; and

4) are the elements by the same author.

Id. When judged by these factors, we find that the Works at issue in this case are combined in "collections" and that each subpart must be considered a "single work" for the purposes of fair use analysis.

Courts have followed this approach and found that components of a "collection" constitute single works for fair use purposes. In Szabo v. Errison, 68 F.3d 940 (5th Cir. 1995), the court granted copyright protection to the component elements of a collection of recordings despite the fact that the elements were not individually listed on the copyright registration. RTC's claim is even stronger because it undertook an individualized listing. See also Hustler Magazine v. Moral Majority, 796 F.2d 1148, 1154 (9th Cir. 1986) ("[e]ach component of a composite work is capable of individual copyright protection and need not bear a separate copyright notice"); American Geophysical Union v. Texaco, 802 F.Supp. 1, 17 (S.D.N.Y. 1992)(each article within a copyrighted journal constituted a single work for fair use purposes).

*10 Although Lerma did not post the entirety of OT II, OT III, NOT's, or Power, he did post the entirety of certain discrete subparts of these series. Under the Code of Federal Regulations and under case law, these subparts constitute single works and are the benchmark against which to compare Lerma's actions. Following this analysis, Lerma's infringement is clear.

As a final defense under this fair use factor, Lerma urges this Court to consider the Internet postings in their unique newsgroup context. Rather than viewing each individual posting in isolation, Lerma contends that each posting must be considered within the context of the ongoing dialogue he has conducted on the newsgroup. The qualitative analysis would then include the multiple communications posted before and after the alleged infringements, communications which are likely to contain greater commentary and analysis than the postings at issue.

This approach would permit a would-be infringer to participate in blatant theft of a copyright yet still escape punishment via the subsequent posting of subsequent commentary -- a commentary that may not always be seen in tandem with the infringing work. Under this argument "cyberbandits" could easily cover their tracks.

The third fair use factor therefore weighs heavily against Lerma. His direct copying and posting of certain "single works" registered within collections, almost totally devoid of discussion and commentary, nearly are sufficient to preclude a fair use defense.

Effect on the Market of the Copyrighted Work: The fourth and final part of the fair use defense considers the effect which the allegedly infringing use had on the potential market for, or value of, the copyrighted work. 17 U.S.C.A. § 107(4).

Courts have frequently identified this as the most important element of a fair use analysis. See, e.g., Harper & Row, 471 U.S. at 566; New Era Publications v. Carol Pub. Group, 904 F.2d 152, 159 (2nd Cir. 1990). However, the 1967 House Report cautions that it "must almost always be judged in conjunction with the other three criteria." Marcus v. Rowley, 695 F.2d 1171, 1177 (9th Cir. 1983)(citing H.R. Rep. No. 83, 90th Cong., 1st Sess. 33, 35 (1967)). Lerma correctly argues that any economic harm befalling the Church of Scientology as a result of legitimate commentary is permissible under the fair use doctrine. The Supreme Court found in Campbell v. Acuff-Rose Music, Inc., 510 U.S. at 592 (1994), that we must "distinguish between '[b]iting criticism [that merely] suppresses demand [and] copyright infringement[, which] usurps it"' (brackets in original)(citation omitted). It is extremely difficult to address the issue of market impact in this case because it is unlikely that excerpts of the Works posted by Lerma thus far, although substantial, would provide a sufficient basis for would-be parishioners to defect from Scientoloty. However, RTC's inability to prove a decrease in Scientology enrollment does not justify Lerma's actions. "The mere absence of measurable pecuniary damage does not require a finding of fair use." Marcus v. Rowley, 695 F.2d 1171, 1177 (9th Cir. 1983).

*11 The potential for economic harm to RTC must also be considered. "[T]o negate fair use one need only show that if the 'challenged use should become widespread, it would adversely affect the potential market for the copyrighted work'." Harper & Row, 471 U.S. at 568 (citing Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. at 451). RTC correctly notes that a substantial expansion of Lerma's current activities presents an identifiable risk of harming RTC. In Bridge Publication, Inc. v. Vien, 827 F.Supp. 629, 633 (S.D.Cal. 1993), the court found such a risk in another case involving the Church of Scientology. In Vien, unpermitted copying of RTC's literary works and sound recordings was held to violate copyright law in part because the copies fulfilled the demand for the original works and diminished or prejudiced their potential sale. Id. at 636. The infringer in Vien actually competed with the Church of Scientology. RTC argues that Lerma poses some competitive risk to RTC, supports this argument with a communication which states that the "[p]ublic are [sic] encouraged to use a workable technology ... The complete works of all clearing practitioners are made available to all with desire and courage to apply them. Franchises flourish ..." Ex. 8 to Fifth Lerma Decl.

Overall, however, RTC in this case are far too speculative. RTC is unable to present specific, identifiable evidence of the effect that Lerma's postings have had or could have on the Church of Scientology, and cannot establish that Lerma is operating as a direct competitor of the church. Thus, the Court finds that the fourth fair-use factor tips slightly in Lerma's favor.

Fair Use Summary: Based upon the four statutory factors listed in §107 for evaluating the fair use defense, the Court finds that Lerma's copying and posting of the Works does not constitute fair use.

Misuse of Copyright

Lerma next argues that even if his copying and publications on the Internet are not protected by the fair use defense, this Court should nevertheless grant summary judgment in his favor because RTC has misused its copyright. The misuse of copyright doctrine is an affirmative defense to copyright infringement. Its goal is to prevent the owner of a copyright from improperly utilizing the legal rights granted to it under the copyright laws. Lerma is correct that "[a] successful defense of misuse of copyright bars a culpable plaintiff from prevailing on an action for infringement of the misused copyright." Lasercomb America, Inc. v. Reynolds, 911 F.2d 970, 972 (4th Cir. 1990).

Lerma argues two bases for his misuse claim. First, he questions the bona fides of RTC's copyright infringement law suit, arguing that RTC's true objective was the impoundment of Lerma's computer-related materials. Lerma maintains that RTC exercised its options under the Copyright Act as a mere pretense for gaining access to his computer files, thereby allowing them to "romp[] through" his personal materials and investigate and intimidate other RTC critics. Second, Lerma alleges that RTC utilizes its copyrights and the litigation process generally "as a means to harass, burden, and punish Mr. Lerma for his criticism of Scientology."

*12 Even assuming arguendo that such motivations were part of RTC's litigation strategy, that does not constitute misuse of copyright. Misuse of copyright applies where the copyright owner tries to extend the copyright beyond its intended reach, thereby augmenting the physical scope of copyright protection. It typically arises in situations where it is alleged that the copyright owner projected his unique rights in a work onto other, unrelated products or services. See e.g., Lasercomb, 911 F.2d 970 (4th Cir. 1990) (defense of misuse upheld against plaintiff who attempted to extend control of its lawfully copyrighted material through the use of a 99-year licensing agreement); Service & Training, Inc. v. Data General Corp., 963 F.2d 680 (4th Cir. 1992)(alleged misuse of copyright by premising availability of computer programs on defendant's use of plaintiff's computer repair services); Electronic Data Systems v. Computer Associates, 802 F.Supp. 1463 (N.D.Tex. 1992)(alleged misuse by tying the purchase of copyrighted software to other products); United Tel. Co. of Mo. v. Johnson Pub. Co., Inc., 855 F.2d 604 (8th Cir. 1988)(alleged misuse by requiring that plaintiff purchase entire customer list rather than the copyrighted subset requested by plaintiff). As these cases demonstrate, misuse is somewhat analogous to the prohibition against "tying" in patent law. Because copyright is intended to protect only those works containing the requisite indicia of creativity and originality, casting the shadow of its virtual monopoly onto other unprotected works would constitute a "misuse."

The defense of misuse of copyright has also arisen in circumstances where the plaintiff attempted to restrain defendant from using material over which the plaintiff itself had no rights, Qad. Inc. v. ALN Associates, Inc., 770 F.Supp. 1261 (N.D.Ill. 1991), where the plaintiff distributed the copyright in an allegedly discriminatory manner, Supermarket of Homes, Inc. v. San Fernando Valley Board of Realtors, 786 F.2d 1400 (9th Cir. 1986), or where the copyright owner refused to supply a list of copyrighted songs as requested by the defendant, Tempo Music, Inc. v. Myers, 407 F.2d 503 (4th Cir. 1969). In each of these cases, the misuse concerns the wrongful use of the copyright powers themselves in ways violative of the Constitution or public policy. In other words, the proponent of the misuse defense must effectively argue that the plaintiff is asserting its copyrights in an improper or offensive manner not intended by the copyright laws. Such a misuse is quite distinct from the legitimate invocation of one's copyright even though prompted by ulterior motives. To misuse a copyright, therefore, the copyright owner must use the copyright in an impermissible way by "extend[ing his] monopoly or otherwise violat[ing] the public policy underlying copyright law." National Cable Television v. Broadcast Music, Inc., 772 F.Supp. 614, 652 (D.D.C. 1991).

*13 Lerma fails to make such a showing. This is not a case where RTC attempted to assert copyrights it did not own, or where RTC attempted to tie its copyrights to other products. Lerma's infringement is unmistakable, and RTC's opposition is sound.

Having determined that Lerma has violated RTC's rights to the Works, and having rejected the defenses of fair use and misuse, the Court finds that Lerma has infringed RTC's copyright interest in the Works by posting the G-Series Exhibits.

Damages and Remedies

The Court will now preliminarily address the appropriate remedy for Lerma's infringements. The basis for monetary damages in an infringement action is set forth in 17 U.S.C. § 594. That section enables a copyright owner to seek either "actual damages and any additional profits of the infringer" or "statutory damages." 17 U.S.C. §504(a).

Actual damages and profits are not readily ascertainable in this case because of a number of factors, including that Lerma was not selling the infringed material, that he is not a direct competitor of the Church of Scientology, and that RTC is unable to show lost profits or fewer parishioners with any degree of certainty. The Court need not determine actual damages, however, because RTC has indicated its intention to seek only the "statutory minimum damages afforded by the Copyright Act." [FN2]

FN2. See Plaintiff RTC's Motion for Summary Judgment for Copyright Infringement Against Defendant Lerma at 46, n. 40.

In determining a final statutory award, the Court must answer three questions: [FN3] 1) to what degree do the relevant postings (from the G-Series Exhibits) infringe RTC's copyrights; 2) how many acts of infringement occurred and 3) to what extent was the infringement willful.

FN3. The Court initially indicated to the parties that it would entertain supplemental briefing on all damages and remedies issues following the issuance of this Memorandum Opinion. Upon further analysis, the Court no longer requires additional argument regarding statutory damages. Supplemental briefs pertaining solely to the award of attorney's fees shall be submitted within 11 days of this Memorandum Opinion.

To What Extent do the Works Infringe -- The Court has reviewed in detail the allegedly infringing Works submitted by RTC in conjunction with its summary judgment motion. Without exception, each of the 33 binders tendered as the G- Series Exhibits demonstrates infringement of the RTC's copyrights in the documents at issue.

None of the exhibits can be considered fair use under the analysis outlined above. Lerma's copies typically consist of verbatim copying wholly devoid of criticism or other commentary. Lerma often reproduces the exact text of the copyrighted work so that the two versions are virtually indistinguishable. Some indicia of his direct copying include identical use of titles, subheadings, section markers, quotation marks, capitalization, hyphenation and underlining.

In addition to these grammatical similarities, Lerma's postings often reveal identical numbering and lettering schemes to separate the text. See, e.g., RTC Exs. G-17 & G-18. At times the copying goes so far as to reproduce the actual visual layout of the copyrighted text, so that the division of characters and their placement into similar columns matches that of the copyrighted Work. See, e.g., RTC Ex. G-18. Many exhibits include Lerma's blatant reproduction of L. Ron Hubbard's authorship line. See, e.g., RTC's Exs. G-26, G-27, & G-28)

*14 Several of the disputed Works include hand-drawn illustrations which are not produced in Lerma's copies. See, e.g., RTC Exs. G-13. G-21 & G-22. These illustrations are omitted from Lerma's versions of the document, omissions which make his infringement even more glaring because much of Lerma's verbatim text refers to the illustrations that are absent. Other omissions which the Court finds particularly troubling occur in verbatim copies of certain RTC "bulletins" where Lerma appears to have transferred everything except the "Confidential" heading and the copyright markers. See, e.g., RTC Exs. G-26 through G-30.

The amount and substantiality of the relevant sections of the RTC and Lerma documents also support a finding of infringement. In the vast majority of exhibits, 100% of Lerma's document is simply a direct copy of 100% of RTC's copyrighted document. See, e.g., RTC Exs. G-1 through G-13, G-17 through G-19, G-26 through G-30, & G-32 through G-33. When there are slight variances, they appeared to be typographical errors or insignificant word substitutions. In a few cases, the excerpted section of the copyrighted work was significantly less than a total copy, but that section nonetheless constituted the entirety of Lerma's reproduction. See, e.g., RTC Exs. G-14, G-15, G-16, & G-20. If 60% of an RTC copyrighted document is copied to form 100% of a Lerma document, without any change or commentary whatsoever, this still does not constitute fair use.

Number of Infringing Acts -- Although each of the 33 binders contained in RTC's G-Series Exhibits are infringing, this does not necessarily indicate 33 acts of infringement. The Copyright Act clearly states that for purposes of calculating statutory damages for copyright infringement, "all the parts of a compilation or derivative work constitute one work." 17 U.S.C. §504 (1996).

Each of the 33 exhibits in this case arise from one of five different compilations filed with the Copyright Office of the United States. Exhibits G-1 through G-15 arise from the copyright registration entitled "OT III SERIES" (Copyright Registration Number TXu 290-496, Jan. 30, 1987); Exhibits G-16 through G-25 arise from the copyright registration entitled "OT II SERIES" (Copyright Registration Number TXu 303-388, September 17, 1987); Exhibits G-26 through G-29 arise from the copyright registration entitled "NED FOR OTS SERIES" (Copyright Registration Number TXu 257-326, November 10, 1986; Exhibit G-30 arises from the copyright entitled "HCO BULLETIN OF 16 NOVEMBER 1981 THE SUNSHINE RUNDOWN, INSTRUCTION" (Copyright Registration Number TXu 303-384, September 1, 1987); and Exhibits G-31 through G-33 arise from the copyright registration entitled "POWER SERIES" (Copyright Registration Number TXu 303- 386, September 1, 1897).

If multiple but distinct works are collected and filed together at the Copyright Office under the same registration, they are to be considered a single work for the purposes of damages. This principle is demonstrated in Stokes Seeds Ltc. v. Geo. W. Park Seed Co., Inc., 783 F.Supp 104 (W.D.N.Y. 1991), where each copying of multiple photographs appearing in a seed company's seedling reference book did not constitute a distinct infringing transaction. Instead, the court viewed the work as a compilation constituting "one work" and therefore "justifying a single award of statutory damages." Id. at p. 107. For the purpose of the damage calculation, the infringing documents at issue in this summary judgment motion similarly constitute five works, not thirty-three.

*15 Because statutory damages are to be calculated according to the number of works infringed and not the number of infringements, Walt Disney Co. v. Powell, 897 F.2d 565, 569 (D.C.Cir. 1990), the Court will find only five instances of infringement for the purposes of calculating damages.

Willfulness --

This court declines to impose increased statutory damages for a willful violation. "An infringement is 'willful' if the infringer knows that its conduct is an infringement or if the infringer has acted in reckless disregard of the copyright owner's right." Video Views, Inc. v. Studio 21 Ltd., 925 F.2d 1010, 1020 (7th Cir. 1991), cert denied, 502 U.S. 861 (1991), cited in Superior Form Builders, Inc. v. Chase Taxidermy Supply Co., 74 F.3d 488, 496 (4th Cir. 1988). See also Microsoft Corp. v. Grey Computer, 910 F.Supp. 1077 (D.Md. 1995).

Lerma's actions do not match those of infringers in cases where courts have found willful violations. In determining whether an infringement was willful, the court in Superior Form Builders considered the infringer's history of infringement, noting that "[t]he record supports the conclusion that Dan Chase Taxidermy became the largest taxidermy supplier in the country by consistently and deliberately copying competitors' forms in disregard of the copyright laws." 74 F.3d at 497. The defendant also falsified a copyright on his product, a mannequin, and was previously sued at least three times for copyright infringement. 74 F.3d at 497. Finally, the court stressed that Chase had represented in his product catalogs that his products were copyrighted and had therefore taken an inconsistent position at trial that the mannequins were not copyrightable. In contrast, Lerma has no history of copyright infringement and he made no representation that he owned the copyright to the Works.

Damages Calculated -- For each instance of non-willful infringement, the Copyright Act enables the Court to award statutory damages of "not less than $500 or more than $20,000 as the court consider just." 17 U.S.C. § 504(c)(1) (1996). In light of the five instances of infringement which occurred in this case, because the penalty is being assessed against an individual of limited means who has already expended considerable sums in this litigation, and because RTC has indicated its express desire to seek only the statutory minimum, provided its copyrights are protected, [FN4] the Court intends to award the statutory minimum of $500 for each infringement, for a total statutory award of $2,500 in favor of RTC and against defendant Lerma, unless the RTC convinces the Court to do otherwise.

FN4. See Plaintiff RTC's Motion for Summary Judgment for Copyright Infringement Against Defendant Lerma, p. 46, n. 40.

Conclusion

For the above-stated reasons, summary judgment on the copyright claim is found in favor of plaintiff, RTC, against defendant Lerma.

The Clerk is directed to forward copies of this Memorandum Opinion to counsel of record and to defendant, pro se.

ORDER

On January 19, 1996, this Court granted summary judgment to the plaintiff on its copyright infringement claim. That ruling was made orally, in open court, with the Court advising the parties that it would explain its reasons in a written opinion and thereafter give the parties an opportunity to address remedies. The time in which to appeal the summary judgment ruling was stayed until the written opinion and damages decisions were issued. The written opinion has now been issued, thus the remaining matter to be addressed is remedies.

*16 The Court is hereby advising the parties, consistent with what it has previously stated, that it does not intend to impose heavy financial damages on the defendant. Unless RTC convinces the Court to the contrary, it will not make a finding of willful infringement in this case. Moreover, unless convinced to the contrary, for purposes of the damage calculation the Court intends to find five instances of violation, specifically one violation for the illegal copying of each of the five works discussed in the Memorandum Opinion. Because RTC has previously indicated it seeks only the statutory minimum damages provided its copyrights are respected, these conclusions would lead to total monetary damages of $2,500.

Defendant is apparently suffering financial hardship and is no longer represented by counsel. Therefore, unless convinced to the contrary, the Court does not plan to award attorneys' fees or the costs of litigation against the defendant.

Lastly, RTC seeks injunctive relief in this action, to which the Court believes defendant does not object. The parties should try to agree to the language of such injunction.

In order to resolve these final issues, it is hereby

ORDERED that RTC file by October 21, 1996, any position on the damages and injunction issues. Defendant will have fifteen (15) days to respond to RTC.

 


74 F.3d 1512 WITHDRAWN

64 USLW 2515, 1995 Copr.L.Dec. P 27,496, 106 Ed. Law Rep. 1008

(Cite as: 1996 WL 54741 (6th Cir.(Mich.)))

PRINCETON UNIVERSITY PRESS, MacMillan, Inc., and St. Martin's Press, Inc.,

Plaintiffs-Appellees,

v. 

MICHIGAN DOCUMENT SERVICES (I), INC., and James M. Smith, Defendants-Appellants.

No. 94-1778.

United States Court of Appeals,

Sixth Circuit.

Decided Feb. 12, 1996.

RYAN, J., delivered the opinion of the court, in which MCKAY, J., joined. NELSON, J. (pp. 1524-28), delivered a separate opinion concurring in part and dissenting in part.

RYAN, Circuit Judge.

*1 The plaintiffs, Princeton University Press, MacMillan, Inc., and St. Martin's Press, Inc., brought a copyright infringement action against the defendants, Michigan Document Services, Inc. and James M. Smith, president of MDS. The suit alleges that the defendants infringed copyrights held by the plaintiffs when MDS made multiple copies of excerpts from various materials provided by University of Michigan professors, compiled these copies into "coursepacks," and sold the coursepacks to students for a profit. The district court granted summary judgment to the plaintiffs, found that the defendants' infringement was "willful," and issued an injunction against the defendants. The defendants appeal the district court's decision, defending their copying practices primarily on the ground that the coursepacks are a "fair use" of the copyrighted works and therefore not an infringement. We agree with the defendants that their use is a "fair use" as defined in the Copyright Act of 1976, 17 U.S.C. § 107, and reverse.

I.

Michigan Document Services is a so-called "copy shop" and provides general photoreproduction services to the public. Some of its profits are derived from the sale of "coursepacks" to professors and students. Coursepacks are compilations of various copyrighted and uncopyrighted materials, which may include journal articles, newspaper articles, course notes or syllabi, sample test questions, and excerpts from books. Professors select the contents of the coursepacks and deliver the selected materials to MDS with an estimate of the number of students expected in the course. The professors assign the material to students enrolled in a particular class and inform these students that they may purchase the required materials in coursepack form at MDS if they wish. In the alternative, students are free to make copies of the excerpted material at the library themselves, to copy the material from other students, or to purchase the original works. MDS prepares a master copy of all the materials obtained from the professor, creates a table of contents, identifies excerpts by author and name of the underlying work, numbers the pages, and then binds the copied excerpts together. These coursepacks are sold only to students for use in a particular course. They are not sold to the general public; any copies that are not purchased are simply discarded. The coursepacks are priced on a per-page basis, regardless of the contents of the page; that is, the fee for a page reproducing copyrighted materials is the same as the fee for a blank page.

We are specifically concerned in this case with six excerpts extracted from works to which plaintiffs hold the copyrights. Following the direction of several professors who brought the excerpts to the defendants for copying, MDS assembled the excerpts, along with other materials not at issue in this suit, into three coursepacks.--MDS copied 95 pages, or 30%, of Farewell to the Party of Lincoln: Black Politics in the Age of FDR, by Nancy J. Weiss; 45 pages, or 18%, of Public Opinion, by Walter Lippmann; 77 pages, or 18%, of The Nature of Human Values, by Milton Rokeach; 78 pages, or 16%, of Political Ideology: Why the American Common Man Believes What He Does, by Robert E. Lane; 52 pages, or 8%, of Social Psychology, by Roger Brown; and 17 pages, or 5%, of Where the Domino Fell: America and Vietnam, 1945 to 1990, by James S. Olson and Randy Roberts. Each of the requesting professors signed a declaration that he does not request copies of excerpts where he would otherwise have assigned the entire work to his students. MDS sold the coursepacks containing these six excerpts to students at the University of Michigan for use in the 1992 winter semester.

*2 Each of the plaintiff publishers operates a department that receives and processes requests for permission to use any of that publisher's copyrighted works. The plaintiff publishers usually charge a fee for allowing others to copy portions of their works and generally share these fees with the authors. Sometimes the publishers grant permission to copy without charge, and other times they deny permission entirely.

MDS did not seek permission to copy any of the six excerpts or pay any royalties or permission fees for the use of the excerpts before selling them to the students. Although only six excerpts are at issue here; the president of MDS estimates that the excerpts at issue are among several thousand such excerpts for which permission to copy was never sought.

II.

The publishers obtained preliminary injunctive relief against MDS in the district court. The publishers and MDS then filed cross motions for summary judgment. In its subsequent order and judgment, the district court granted the publishers' motion for summary judgment as to liability and denied MDS's motions for summary judgment. The district court found that MDS had willfully infringed the publishers' copyrights, and, pursuant to 17 U.S.C. § 504(c), awarded the publishers statutorily enhanced damages of $5000 per infringed work, for a total of $30,000, plus attorney fees. The district court enjoined MDS from "copying any of plaintiffs' existing or future copyrighted works without first obtaining the necessary permission." Princeton Univ. Press v. Michigan Document Services, Inc., 855 F.Supp. 905, 913 (E.D.Mich.1994).

[1] This court determines de novo whether, viewing the evidence in the light most favorable to the party against whom summary judgment has been granted, the moving party has demonstrated that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The question on review of a summary judgment is " 'whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one sided that one party must prevail as a matter of law.' " National Rifle Ass'n v. Handgun Control Fed'n, 15 F.3d 559, 561 (6th Cir.) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2511-12, 91 L.Ed.2d 202 (1986)), cert. denied, --- U.S. ----, 115 S.Ct. 71, 130 L.Ed.2d 26 (1994).

III.

The publishers allege that MDS's for-profit copying and assembling of excerpts from copyrighted works violates the publishers' exclusive copyrights. The publishers argue that MDS and the publishers compete in the same market. The plaintiffs publish textbooks, anthologies, collections of readings, and other works designed to be useful in the college classroom. The publishers hope that college professors will assign these books and that students will purchase them. In addition to publishing books themselves, the publishers license others, including copy shops like MDS, to use portions of their copyrighted works.

*3 When a professor is dissatisfied with existing published materials, he may designate the readings selected from a number of sources that best suit his specialized purposes and request that MDS, or a similar service, compile a coursepack of these readings. The publishers argue that MDS, like the publishers themselves, hopes that professors will assign, and students will buy, its "books." The publishers emphasize that MDS advertises its services and advertises the fact that coursepacks can be used "to replace a conventional textbook." Thus, the publishers characterize MDS as a fellow competitor in the higher education market--a competitor who exploits their copyrighted materials without paying the customary fee.

The publishers allege that the coursepacks prepared by MDS do not constitute fair use of copyrighted works for a number of reasons: the coursepacks have no transformative value; the coursepacks are prepared for commercial purposes; the excerpts are of substantial length and constitute the heart of each work as identified by the requesting professor; the copyrighted works excerpted are valuable, original works at the very core of copyright protection; and MDS's refusal to pay permission fees affects an established derivative market in which licensed users pay to copy excerpts of copyrighted works for a variety of purposes.

The publishers rely on the legislative history of the Copyright Act. Specifically, they rely on the Classroom Guidelines, which House and Senate conferees "accept[ed] as part of their understanding of fair use ... with respect to books and periodicals" prior to enactment of the Copyright Act. H.R.REP. NO. 1476, 94th Cong., 2d Sess. 68 (1976) U.S.Code Cong. & Admin.News 1976 at 5659, 5681. The Classroom Guidelines assure educators that non-profit copying for educational purposes of "not more than 1,000 words" is fair use when "[t]he inspiration and decision to use the work and the moment of its use for maximum teaching effectiveness are so close in time that it would be unreasonable to expect a timely reply to a request for permission." H.R.REP. NO. 1476 at 68-71 U.S.Code Cong. & Admin.News 1972 at 5659, 5681-5684. The Classroom Guidelines "prohibit[ ] ... [c]opying ... used to create ... anthologies, compilations or collective works." H.R.REP. NO. 1476 at 69 U.S.Code Cong. & Admin.News 1972 at 5659, 5682. The publishers argue that MDS's use of the excerpts far exceeds the "safe harbor" of protection offered by the Guidelines in that MDS copies excerpts that are much longer than 1,000 words, copies for profit, creates anthologies, and copies without permission although it has ample time to seek permission from copyright holders.

MDS, on the other hand, emphasizes that the public has a right to make fair use of a copyrighted work, and to exercise that right without requesting permission from, or paying any fee to, the copyright holder. Because the primary purpose of the Constitution's Copyright Clause is not to enrich authors and inventors but to encourage the progress of science and the production of creative works for the public good, only unfair uses of copyrighted materials are prohibited; fair uses are affirmatively guaranteed to the public. The defendant therefore argues that MDS's production of coursepacks at the direction of professors cannot violate copyright law because the mere mechanical photoreproduction of materials is not a "use" of those materials in the first place. Further, MDS alleges, the classroom use of the coursepacks promotes learning without undue harm to the incentives to create original works; any copying done at the direction of professors who are making fair use of the materials is therefore authorized as necessary and incidental to that fair use.

*4 Professors select materials to expose their students to theories, facts, and recent developments in the field that are most relevant to the individual professor's classroom goals. When the materials selected are not so central to the course or are not so lengthy as to justify, in the professor's judgment, requiring students to purchase the entire original work in which the relevant portions appear, a professor may seek to compile a coursepack of excerpts. Rather than produce multiple copies of the relevant selections themselves or require their students to spend time producing individual copies from scarce library materials, professors request that MDS, or a similar service, copy and assemble the excerpts selected; MDS produces better copies at less cost than individual students could.

MDS notes that professors receive no commissions or other economic benefit from delivering coursepack materials to MDS, and that the publishers lose no sales since the copyrighted works would not otherwise have been assigned. Thus, even assuming that the mechanical photoreproduction of excerpts does amount to a "use" under the Copyright Act, MDS argues that its production of copies for academic use does not violate copyright law.

IV.

Modern copyright law is derived from the Framers' conviction that providing a secure economic incentive to individuals is the best way to stimulate development of "Science and useful Arts" to the ultimate benefit of the general public: "The Congress shall have Power ... [t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." U.S. CONST. art. I, § 8, cl. 8.

The Supreme Court has acknowledged repeatedly "the inherent tension in the need simultaneously to protect copyrighted material and to allow others to build upon it," Campbell v. Acuff-Rose Music, Inc., --- U.S. ----, ----, 114 S.Ct. 1164, 1169, 127 L.Ed.2d 500 (1994), and thereby maximize progress. Although monopoly protection of the financial interests of inventors and authors is necessary "to stimulate creativity and authorship, excessively broad protection would stifle, rather than advance," intellectual progress. Pierre N. Leval, Toward a Fair Use Standard, 103 HARV.L.REV. 1105, 1109 (1990). For progress in "Science and useful Arts" to occur, others must be permitted to build upon and refer to the creations of prior thinkers. Accordingly, three judicially created doctrines have been fashioned to limit the copyright monopoly and its potentially stifling effects: first, copyright law does not protect ideas but only their creative expression; second, facts are not protected, regardless of the labor expended by the original author in uncovering them; and, third, the public may make "fair use" of the copyrighted works. MDS relies most heavily on the fair use doctrine.

*5 The Copyright Act both establishes a general grant of monopoly powers to holders of copyrights and codifies the "fair use" doctrine as an exception to that broad grant. Section 106 of the Copyright Act confers exclusive rights upon individual creators, providing in relevant part as follows:

Subject to sections 107 through 120, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following:

(1) to reproduce the copyrighted work in copies or phonorecords;

(2) to prepare derivative works based upon the copyrighted work;

(3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.

17 U.S.C. § 106.

Section 107 carves out an exception to the exclusive rights conferred in section 106, permitting members of the public to use copyrighted works for "fair" purposes:

Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include--

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

17 U.S.C. § 107.

[2][3][4] The four fair use factors "are to be ... weighed together, in light of the purposes of copyright," Campbell, --- U.S. at ----, 114 S.Ct. at 1171 (citing Leval, supra, at 1110-11), and "[t]he primary objective of copyright is not to reward the labor of authors, but '[t]o promote the Progress of Science and useful Arts.' " Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 349, 111 S.Ct. 1282, 1289, 113 L.Ed.2d 358 (1991) (quoting U.S. CONST. art. I, § 8, cl. 8). Thus, the "fair use" concept embodied in section 107 may be understood generally to permit a secondary use that "serves the copyright objective of stimulating productive thought and public instruction without excessively diminishing the incentives for creativity." Leval, supra, at 1110. An evaluation of fair use therefore "involves a difficult balance between the interests of authors and inventors in the control and exploitation of their writings and discoveries on the one hand, and society's competing interest in the free flow of ideas, information, and commerce on the other hand." Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 429, 104 S.Ct. 774, 782, 78 L.Ed.2d 574 (1984). Despite statutory mention of "teaching" and "multiple copies for classroom use" as possible fair uses, § 107, "the mere fact that a use is educational and not for profit does not insulate it from a finding of infringement." Campbell, --- U.S. at ----, 114 S.Ct. at 1174. Thus, here, the use must be examined under all four factors as must any other allegedly infringing work.

*6 [5] The four statutory factors are unambiguous. Therefore, we need not resort to the legislative history. Congress could easily have enacted the Classroom Guidelines into law by including the Guidelines in the language of section 107; it chose instead to establish four broad factors to be considered in a case-by-case analysis of all alleged fair uses, even classroom uses, of copyrighted material. We are bound by Congress' decision. The publishers' reliance on the Classroom Guidelines is misplaced; we may not permit the statutory text enacted by both Houses of Congress "to be expanded or contracted by the statements of individual legislators or committees during the course of the enactment process." West Virginia Univ. Hosps., Inc. v. Casey, 499 U.S. 83, 98-99, 111 S.Ct. 1138, 1146-47, 113 L.Ed.2d 68 (1991). Thus, we rely exclusively upon the language of the Copyright Act, and its construction in the case law, to determine whether MDS's compilation into coursepacks of excerpts selected by professors is a "fair use" of the copyrighted materials.

V.

A.

[6][7][8] The first factor that courts must evaluate in a fair use determination is "the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes." 17 U.S.C. § 107(1). There are two parts to this test: (1) the degree to which the challenged use has transformed the original, and (2) the profit or nonprofit character of the use. Ordinarily, analysis under the first factor centers on "whether the new work merely 'supersede[s] the objects' of the original creation ... or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message; it asks, in other words, whether and to what extent the new work is 'transformative.' " Campbell, --- U.S. at ----, 114 S.Ct. at 1171 (citations omitted). Because works that are transformative are more likely to promote science and the arts, transformative works are likely to be found to be fair uses, whereas works that merely copy the original are likely to be found to be infringements of the copyrighted work. However, the Supreme Court has noted in dictum that "[t]he obvious statutory exception to this focus on transformative uses is the straight reproduction of multiple copies for classroom distribution." Id. at n. 11. Thus, although the transformative value of the coursepacks is slight, the fact that the coursepacks are "multiple copies for classroom use" preserves MDS's claim of "fair use."

Further, the transformative value is slight but not nonexistent. The coursepack is essentially a new product comprising selected portions of other works, and perfectly customized to the classroom professor's individualized purpose. A professor may select precisely the materials that he feels are most instructive in the course, with constant opportunity to alter the whole, from time-to-time, by altering the mix. Coursepacks are particularly helpful in newly conceived interdisciplinary courses that draw small portions from a number of traditional, established disciplines. The publishing industry does not offer such highly customized and current materials, and indeed is not equipped to do so.

*7 The other element of the first "fair use" factor is whether the purpose of the use is commercial or nonprofit and educational. Id. at ----, 114 S.Ct. at 1174. The "fact that a publication [is] commercial as opposed to nonprofit is a separate factor that tends to weigh against a finding of fair use." Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 562, 105 S.Ct. 2218, 2231-32, 85 L.Ed.2d 588 (1985). The central inquiry "is not whether the sole motive of the use is monetary gain but whether the user stands to profit from exploitation of the copyrighted material without paying the customary price." Id.

The coursepacks at issue are "used" at two levels. One "use," MDS's production and sale of the coursepacks, is clearly a for-profit "use," and one, the students' use of the coursepacks in the classroom, is entirely non-profit and educational. The publishers argue that the only relevant "use" under the first factor in this suit against MDS is MDS's sale of the coursepacks to students, not the use of the purchased coursepacks in the classroom. We disagree. Congress specifically mentioned "teaching (including multiple copies for classroom use)," § 107 (emphasis added), as an illustration of a possible fair use. The language of section 107 incorporates copying (implicit in "multiple copies") within the illustrative use of "teaching." Congress specifically anticipated the use of "multiple copies" for the purpose of "teaching"; we cannot examine the production of multiple copies in a vacuum, ignoring their educational use. The copying in this case is not a use unto itself; it is the mechanical component of the process that makes the material available for classroom use. The language of the statute, "including multiple copies for classroom use," requires us to consider copying as an integral part of "teaching." Therefore, we consider both the mechanical production of the copies and the classroom use of the excerpts in evaluating "the purpose and character of the use" and its commercial or nonprofit educational nature.

[9] Because Congress "eschewed a rigid, bright-line approach to fair use," Sony, 464 U.S. at 448 n. 31, 104 S.Ct. at 792 n. 31, our mandate is to conduct "a sensitive balancing of interests," id. at 455 n. 40, 104 S.Ct. at 795 n. 40, considering all the circumstances. We must determine whether MDS stood "to profit from exploitation of the copyrighted material without paying the customary price." Harper & Row, 471 U.S. at 562, 105 S.Ct. at 2231. In the context of this case, we find the undisputed fact that MDS can produce "multiple copies for classroom use," at a profit, for less than it would cost the professors or students to produce them to be significant. The publishers declined at oral argument to argue that the professors and students may not copy these excerpts and assemble them privately for their own educational purposes. The professors and students, who might otherwise copy the materials themselves, have assigned the task of copying to a professional service that can perform the copying more efficiently. On these facts, the for-profit provision of this service does not weigh against a finding of fair use. Here, MDS obtains a profit by providing a service. MDS charges on a per-page basis, regardless of content; MDS does not extract an extra fee for reproducing materials that are copyrighted. MDS does not "exploit" copyrighted material within the meaning of Harper & Row, 471 U.S. at 562, 105 S.Ct. at 2231, because its fee does not turn on the content of the materials, copyrighted or not, that it copies. It does not, of course, select the materials to be copied or determine the amount to be excerpted. The business of producing and selling coursepacks is more properly viewed as the exploitation of professional copying technologies and the inability of academic parties to reproduce printed materials efficiently, not the exploitation of copyrighted, creative materials. We hold that the Copyright Act does not prohibit professors and students who may make copies themselves from using the photoreproduction services of a third party in order to obtain those same copies at less cost.

*8 Thus, the coursepacks fit within the exception to the "transformative" quality requirement, and the predominant character of the use of excerpts in coursepacks is not commercial but "nonprofit educational." The first factor therefore favors a finding of fair use.

B.

[10][11][12] The second fair use factor, "the nature of the copyrighted work," 17 U.S.C. § 107(2), recognizes that fair use is more difficult to establish when the work being used is at "the core of intended copyright protection." Campbell, --- U.S. at ----, 114 S.Ct. at 1175. Factual compilations, such as telephone book listings, with only a small element of creativity and originality may be used more freely than creative works. Feist, 499 U.S. at 348-51, 111 S.Ct. at 1289-91. The materials copied in this case are much closer to the core of work protected by copyright than to the mere compilations of raw data in the phone books in Feist. The excerpts used in the coursepacks are substantially creative, containing original analysis and creative theories. Although some of the copyrighted works contain non-original material not protected by copyright, each excerpt contains far more than the "minimal degree of creativity" that qualifies it as "independently created by the author" and therefore original. Id. at 344- 48, 111 S.Ct. at 1286-89.

[13] The fact that the excerpts in this case are extracted from works that may be categorized as "non-fiction" does not mean that any use is fair use. Rather, monopoly protections accrue "equally to works of fiction and nonfiction." Harper & Row, 471 U.S. at 546, 105 S.Ct. at 2223. Copyright protections are intended to induce the creation of new material of potential historical value, not just fictional works, and therefore extend to the excerpts here at issue.

The second factor, on these facts, does little more than confirm that the works at issue are protected by copyright and may only be used "fairly." Thus, the fair use examination properly proceeds to evaluate factors three and four to determine whether this use of the excerpts is fair.

C.

[14] The third factor considers "the amount and substantiality of the portion used in relation to the copyrighted work as a whole." 17 U.S.C. § 107(3). In the context of a musical parody's use of a copyrighted song, the Supreme Court interpreted this factor to inquire whether the quantity and value of the materials used were reasonable in relation to the purpose of the copying, noting that "the extent of permissible copying varies with the purpose and character of the use." Campbell, --- U.S. at ----, 114 S.Ct. at 1175. As the Supreme Court acknowledged, "[t]he facts bearing on this factor will also tend to address the fourth [factor, which evaluates market effect], by revealing the degree to which the parody may serve as a market substitute for the original or potentially licensed derivatives." Id. Thus, we ask whether such substantial portions of a copyrighted work were used that a coursepack is "composed primarily of [the] original, particularly [the original's] heart, with little added or changed" such that the coursepack merely supersedes the copyrighted work, "fulfilling demand for the original." Id. at ----, 114 S.Ct. at 1176.

*9 There is no evidence that the six excerpts in the coursepacks are so substantial as to supersede the original works. The publishers have submitted a declaration stating that, in accordance with established practices, permission would have been denied, even if sought, with regard to the excerpt from Public Opinion, by Walter Lippmann. The publisher considers the excerpt so lengthy and the published edition sufficiently inexpensive that the book should have been purchased rather than copied with permission, for a fee. The declarant opined that copying 46 pages would adversely affect book sales, but offered no factual evidence in this regard. The fact that the publisher would prefer the book to be purchased is not relevant to our analysis. Each of the professors who delivered the materials at issue to MDS signed a statement that he would not otherwise have assigned the copyrighted work to the class. Nothing in the record contradicts these declarations.

The lengthiest excerpt used in one of the coursepacks comprised only 30% of Farewell to the Party of Lincoln: Black Politics in the Age of FDR, by Nancy J. Weiss, the original copyrighted work. Other excerpts ranged from 5% to 18% of the original works. There is no evidence to suggest that even the 30% selected from Weiss's book extracted the heart of the work rather than just those portions that the professor deemed instructive for his limited classroom purposes. Cf. Harper & Row, 471 U.S. at 565-66, 105 S.Ct. at 2223-24. Given the uncontroverted declarations of the professors that they would not have chosen to assign the original works even if copied excerpts were not available, there is no basis for us to conclude that the portions extracted from the copyrighted works were so substantial that the resulting coursepacks superseded the originals. As the district court noted, the six excerpts at issue in this case "are truly 'excerpts,' and do not purport to be replacements for the original works." Princeton, 855 F.Supp. at 910.

The record cannot support a finding that the copyrighted works at issue were excerpted so substantially that the coursepacks superseded the original works. Thus, the third factor favors a finding of fair use.

D.

[15][16][17] The fourth fair use factor is "the effect of the use upon the potential market for or value of the copyrighted work." 17 U.S.C. § 107(4). Under this factor, courts must consider the extent of market harm caused by the particular actions of the alleged infringer and "whether unrestricted and widespread conduct of the sort engaged in by the defendant ... would result in a substantially adverse impact on the potential market for the original." Campbell, --- U.S. at ----, 114 S.Ct. at 1177 (internal quotation marks omitted). The fourth factor is the single most important element of fair use, Harper & Row, 471 U.S. at 566, 105 S.Ct. at 2223-24, and "must take account not only of harm to the original but also of harm to the market for derivative works." Id. at 568, 105 S.Ct. at 2234.

*10 [18] Because the record before us contains no evidence that the market for the original work, or for derivative works, was affected by the use of excerpts in coursepacks, the resolution of this factor turns on the assignment of the burden of proof on market effect. The Sony Court assigned the burden of proof on market effect to the party alleging infringement, 464 U.S. at 451, 104 S.Ct. at 793, whereas the Campbell Court assigned the burden of proof on market effect to the proponent of the fair use defense, --- U.S. at ---- - ----, 114 S.Ct. at 1177-79. [FN1] The rule articulated in Sony is the one that is applicable to this case because both Sony and the case at hand involve noncommercial uses of a copyrighted work whereas Campbell articulated the rule for commercial uses of a copyrighted work. A commercial use may be presumed to affect the market whereas no such assumption of market effect may be made with regard to a nonprofit educational use. Sony, 464 U.S. at 451, 104 S.Ct. at 793.

FN1. Campbell, --- U.S. at ---- - ----, 114 S.Ct. at 1177-79, held that, because fair use is an affirmative defense, "its proponent would have difficulty carrying the burden of demonstrating fair use without favorable evidence about relevant markets," and that a silent record on the fourth factor "disentitled the proponent of the defense" to summary judgment.

In Sony, the Court held:

A challenge to a noncommercial use of a copyrighted work requires proof either that the particular use is harmful, or that if it should become widespread, it would adversely affect the potential market for the copyrighted work.... What is necessary is a showing by a preponderance of the evidence that some meaningful likelihood of future harm exists. If the intended use is for commercial gain, that likelihood may be presumed. But if it is for a noncommercial purpose, the likelihood must be demonstrated.

Id. Accordingly, because we have determined that the use of the excerpts at issue in the coursepacks is for nonprofit educational purposes, we do not apply a presumption of market harm against MDS's use.

[19] Rather, it is the publishers' burden to demonstrate at least a meaningful likelihood that future harm to a potential market for the copyrighted works will occur. Works or uses that creators of original works would "in general develop or license others to develop" make up the market for potential derivative uses. Campbell, --- U.S. at ----, 114 S.Ct. at 1178. The plaintiffs did not demonstrate that the coursepacks affected the market for the original copyrighted works or the potential market for derivative works, such as published anthologies, nor did they demonstrate any "meaningful likelihood of future harm," Sony, 464 U.S. at 451, 104 S.Ct. at 793, to any market. Rather, the plaintiffs limited their allegations and demonstrations of "market effect" to evidence of lost permission fees resulting from defendants' refusal to seek permission and pay fees for the copying and selling of excerpts from copyrighted works.

*11 [20] Evidence of lost permission fees does not bear on market effect. The right to permission fees is precisely what is at issue here. It is circular to argue that a use is unfair, and a fee therefore required, on the basis that the publisher is otherwise deprived of a fee. The publishers must demonstrate a likelihood that MDS's use of the excerpts replaces or affects the value of the copyrighted works, not just that MDS's failure to pay fees causes a loss of fees, to which the plaintiffs may or may not have been entitled in the first instance. Given the uncontroverted fact that professors would not have assigned the copyrighted works in the absence of available coursepack compilations of excerpts, it appears that there is no damage to the market for the original work.

Photoreproductions of limited excerpts, even if bound, are poor substitutes for a published work for any use beyond the precise scope of the course. For example, it is unlikely that students who wish to build a personal library of books from their college years for future reference will retain loosely bound photoreproduction coursepacks of limited excerpts; unwieldy coursepacks may be inconvenient and unattractive to display and may or may not contain the material sought later in life.

Moreover, the students who used the coursepacks were not a market for purchase of the original works; the professors would not otherwise have required students to purchase the original works. If it had any effect at all, use of the excerpted materials enhanced the prospect that the original works might later be of interest to the student. Students might purchase the copyrighted works when, for example, taking other courses in the same discipline, conducting more extensive research into a subject "touched upon" in an excerpt, or doing graduate work in a broader field to which the excerpted material later appeared relevant and was recalled.

Therefore, we must conclude that there is no evidence of market effect and that the fourth, and most important factor, weighs decisively in favor of "fair use."

E.

[21][22] The four factors specifically set forth in section 107 for consideration are not an exclusive list of the factors relevant to a fair use determination. We confront here an additional consideration. More than one hundred authors declared on record that they write for professional and personal reasons such as making a contribution to the discipline, providing an opportunity for colleagues to evaluate and critique the authors' ideas and theories, enhancing the authors' professional reputations, and improving career opportunities. These declarants stated that their primary purpose in writing is not for monetary compensation and that they advocate wide dissemination of excerpts from their works via coursepacks without imposition of permission fees. The fact that incentives for producing higher education materials may not revolve around monetary compensation is highly relevant. Copyright law seeks to encourage the use of works to the greatest extent possible without creating undue disincentives to the creation of new works. The inclusion of excerpts in coursepacks without the payment of permission fees does not deprive authors and inventors of the rewards that the record indicates authors value, such as recognition. Finding that the excerpts at issue here were used fairly would deprive the authors of their share of permission fees assessed for the copies. However, the record indicates that monetary compensation is a secondary consideration for authors in this field, and the permission fees, while significant in the aggregate to publishing companies, are likely to amount to a mere pittance for individual authors. MDS's use of the copyrighted works appears to provide the authors with incentive to create new works, thereby advancing the progress of science and the arts, rather than to discourage them from doing so.

*12 Thus, an additional factor, incentives to create in this specialized field, weighs in favor of a finding of fair use.

VI.

Because the statutory factors, plus author incentives, dictate a finding of fair use, we conclude that MDS did not infringe upon the copyrights of the publishers in this case. We REVERSE the district court and order summary judgment for the defendants on the basis of fair use.

DAVID A. NELSON, Circuit Judge, concurring in part and dissenting in part.

A generation ago, I suspect, this would have been an easy case for us. The notion that it could be "fair use" for a commercial vendor, acting without authorization from the copyright holder, to copy and sell as much as 30 percent of a copyrighted work of scholarship is a notion that would once have seemed patently absurd.

Changes in technology, and concomitant changes in commercial duplication services and in teaching practices, may have made such a notion seem less patently absurd today. Indeed, my colleagues' rationale for concluding that the defendants' unauthorized coursepacks represent a fair use of the copyrighted materials impresses me as sufficiently plausible to justify reversal of the district court's finding of willfulness. I concur in today's judgment insofar as it vacates the enhanced damages awarded on the strength of the district court's finding that the defendants acted willfully.

I do not concur in the majority's resolution of the fair use question itself. The question of fair use ought to be decided in favor of the plaintiff publishers, in my view, or at the very least ought to be the subject of a trial.

I

Of the four statutory factors that must be considered in determining whether a particular use of a copyrighted work is "fair," the most important is the one set forth in 17 U.S.C. § 107(4). See Harper & Row Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 566, 105 S.Ct. 2218, 2223, 85 L.Ed.2d 588 (1985), citing 3 M. Nimmer, Copyright § 13.05[A], at 13-76 (1984). I turn first to this factor, "the effect of the use upon the potential market for or value of the copyrighted work."

The burden of proof as to market effect rests with the copyright holder if the challenged use is of a "noncommercial" nature. The burden rests with the alleged infringer, on the other hand, if the challenged use is "commercial" in nature. Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 451, 104 S.Ct. 774, 793, 78 L.Ed.2d 574 (1984). My colleagues on the panel conclude that the plaintiff publishers have the burden of proof because the use being challenged here is "noncommercial." I respectfully disagree.

It is true that the use to which the materials are put by the students who purchase the coursepacks is noncommercial in nature. But the use of the materials by the students is not the use that the plaintiff publishers are challenging. What the publishers are challenging is the duplication of copyrighted materials for sale by a for-profit corporation that has decided to maximize its profits--and give itself a competitive edge over other copy shops--by declining to pay licensing fees to the holders of the copyrights.

*13 The defendants' use of excerpts from the books at issue in this case is no less commercial in nature than was The Nation Magazine's use of the excerpts from President Ford's book in Harper & Row. Like the students who purchase unauthorized coursepacks, the purchasers of The Nation did not put the contents of the magazine to commercial use--but that did not stop the Supreme Court from characterizing the defendant's use of excerpts from the copyrighted book as "a publication [that] was commercial as opposed to nonprofit...." Harper & Row, 471 U.S. at 562, 105 S.Ct. at 2231. And like the use that is being challenged in the case now before us, the use challenged in Harper & Row was "presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright." Id., quoting Sony, 464 U.S. at 451, 104 S.Ct. at 793.

The strength of the Sony presumption may vary according to the context in which it arises, and the presumption disappears entirely where the challenged use is one that truly transforms the original work into a new artistic creation. See Campbell v. Acuff-Rose Music, Inc., --- U.S. ----, ----, 114 S.Ct. 1164, 1176, 127 L.Ed.2d 500 (1994). The case at bar involves mere duplication for commercial purposes, as I see it, but I readily concede that the presumption may be weaker in the present case than it would be in many other contexts. There is a presumption of unfairness here, nonetheless, and I am not persuaded that the defendants have rebutted it.

If I am wrong about the existence of the presumption--if the challenged use is not commercial, in other words, and if the plaintiff publishers have the burden of proving an adverse effect upon either the potential market for the copyrighted works or the potential value of the works--I believe that the publishers have carried the burden of proving a diminution in potential market value.

One test for determining market harm--a test endorsed by the Supreme Court in both Sony and Harper & Row--is evocative of Kant's categorical imperative. "[T]o negate fair use," the Supreme Court has said, "one need only show that if the challenged use 'should become widespread, it would adversely affect the potential market for the copyrighted work.' " Harper & Row, 471 U.S. at 568, 105 S.Ct. at 2234, quoting Sony, 464 U.S. at 451, 104 S.Ct. at 793 (emphasis supplied in part). Under this test, as I read the record, it is reasonably clear that the plaintiff publishers have succeeded in negating fair use.

The record shows that most of the copy shops that compete with the defendants in the sale of coursepacks pay modest "permission fees" for the privilege of duplicating and selling excerpts from copyrighted works. In the early 1990s, it appears, the three plaintiffs were collecting permission fees at a rate that approached a total of $.5 million a year. If copy shops across the nation were to start doing what the defendants have been doing here, this revenue stream would shrivel and the potential value of the copyrighted works of scholarship published by the plaintiffs would be diminished accordingly.

*14 The defendants contend that the permission fee argument is circular. In support of this contention they cite the dissenting opinion in American Geophysical Union v. Texaco, Inc., 37 F.3d 881, 900 et seq. (2d Cir.) (Jacobs, J., dissenting), amended & superseded, 60 F.3d 913 (1994), cert. dismissed, --- U.S. ----, 116 S.Ct. 592, 133 L.Ed.2d 486 (1995), and a footnote in a Court of Claims decision, Williams & Wilkins Co. v. United States, 203 Ct.Cl. 74, 487 F.2d 1345, 1357 n. 19 (1973), aff'd by an equally divided court, 420 U.S. 376, 95 S.Ct. 1344, 43 L.Ed.2d 264 (1975). But the potential uses of the copyrighted works at issue in the case before us obviously include the selling of licenses to copy portions of the works for inclusion in coursepacks, and the likelihood that publishers actually will license such copying is a demonstrated fact. A licensing market actually exists here, as it did not in Williams & Wilkins or American Geophysical. I believe that this is a "protectable derivative market," to use the terminology employed by the Supreme Court in Campbell, --- U.S. at ----, 114 S.Ct. at 1178. If so, there is no circularity in saying--as I do say--that the potential for destruction of the protectable derivative market by widespread circumvention of the plaintiffs' permission fee system is enough, under the Harper & Row test, "to negate fair use."

My final point with regard to the fourth statutory factor is that an absence of market harm is not supported by the affidavits of the three professors who assigned one or more of the copyrighted works to be read by the students in their classes. None of these affidavits shows that the professor executing the affidavit would have refrained from assigning the copyrighted work at issue if the position taken by the copyright holder had been sustained beforehand.

It is true that Professor Victor Lieberman, who assigned the excerpt from the Olson and Roberts book on America and Vietnam, raises questions about the workability of the permission systems of "many publishers." In 1991, Professor Lieberman avers, a Kinko's copy shop to which he had given materials for inclusion in a coursepack experienced serious delay in obtaining permissions from unnamed publishers. Professor Lieberman does not say that a timely permission could not have been obtained from the publisher of the Olson and Roberts book, however, and he does not say that he would have refrained from assigning the work if the copy shop had been required to pay a permission fee for it.

It is also true that the publisher of one of the copyrighted works in question here (Public Opinion, by Walter Lippmann) would have turned down a request for permission to copy the 45-page excerpt that the defendants included in a coursepack prepared to the specifications of Professor Donald Kinder. The excerpt was so large that the publisher would have preferred that students buy the book itself, and the work was available in an inexpensive paperback edition. But Professor Kinder does not say that he would have refrained from assigning the excerpt from the Lippmann book if it could not have been included in the coursepack. Neither does he say that he would have refrained from assigning any of the other works mentioned in his affidavit had he known that the defendants would be required to pay permission fees for them.

*15 The third professor, Michael Dawson, assigned a 95-page excerpt from the book on black politics by Nancy Weiss. Professor Dawson does not say that a license was not available from the publisher of the Weiss book, and he does not say that the license fee would have deterred him from assigning the book.

II

The other statutory factors are less important, except insofar as they touch on the fourth factor. I shall deal with them relatively briefly.

A

As to "the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes," 17 U.S.C. § 107(1), I have already explained my reasons for concluding that the challenged use is of a commercial nature. I recognize, of course, that the first sentence of 17 U.S.C. § 107 lists "teaching (including multiple copies for classroom use)" as one of the purposes for which the reproduction of a copyrighted work may constitute a non-infringing fair use. The quoted language may or may not suggest that the professors themselves could properly make multiple copies of large excerpts from the copyrighted works without paying permission fees, but it does not suggest to me that independent contractors who are not members of the teaching profession are free to do so.

My colleagues find it significant that the defendant copy shop can profitably produce multiple copies for less than it would cost the professors or the students to produce them. Most of the copy shops with which the defendants compete have been paying permission fees, however, and I assume that these competitors can still perform the copying on a more cost-effective basis than the professors or students can. This strikes me as a more significant datum than the ability of a black market copy shop to beat the do-it-yourself cost.

As to the degree to which the challenged use has transformed the original copyrighted work, which is another element in the first statutory factor, the majority opinion finds the transformative aspect of the coursepacks to be "slight." I agree. If you make verbatim copies of 95 pages of a 316-page book, you have not transformed the 95 pages very much--even if you juxtapose them to excerpts from other works and package everything conveniently. This kind of mechanical "transformation" bares little resemblance to the creative metamorphosis accomplished by the parodists in the Campbell case.

B

The second statutory factor, "the nature of the copyrighted work," is not in dispute here. The defendants acknowledge that the excerpts copied for the coursepacks contained creative material, or "expression;" it was certainly not telephone book listings that the defendants were reproducing.

C

The third statutory factor, "the amount and substantiality of the portion used in relation to the copyrighted work as a whole," may have more significance for the 95-page excerpt from the black politics book than for the 17-page excerpt from the Vietnam book. But all of the excerpts far exceed the 1,000 word limit that the legislative history of the Copyright Revision Act of 1976 suggests as a benchmark for "educational" copying. See H.R.Rep. No. 1476, 94th Cong. 2nd Sess. (1976); H.R.Conf.Rep. No. 1733, 94th Cong. 2nd Sess. (1976).

*16 My colleagues would give no consideration to the legislative history of the Copyright Revision Act, their theory being that the statutory fair use factors are unambiguous. But the fair use issue has long been the most troublesome one in the whole law of copyright, see Acuff-Rose Music, Inc. v. Campbell, 972 F.2d 1429, 1439 (6th Cir.1992) (Nelson, J., dissenting), and the 1976 legislation did not make it any less so. The Classroom Guidelines incorporated in the legislative history clearly lack the force of law, but this does not mean that we must shut our eyes to them altogether. See Harper & Row, 471 U.S. at 549-553, 105 S.Ct. at 2224-27, where the Supreme Court turned for guidance not only to the house report cited above, but to an earlier senate report "discussing fair use of photocopied materials in the classroom...." Id. at 553, 105 S.Ct. at 2226. And see Campbell, --- U.S. at ----, 114 S.Ct. at 1170, where the Court likewise turned to the congressional committee reports for guidance.

The conference committee that reported out the bill enacted in 1976 did not consider the compilation of anthologies to be fair use. The defendants' coursepacks are anthologies, of course, and the excerpts they contain are much longer than the 1,000-word standard suggested as a safe harbor by the conferees. The guidance offered by the legislative history of the statute that codified the fair use doctrine is far from irrelevant, in my view.

III

I take as the text for my concluding part Justice Stewart's well-known exposition of the correct approach to "ambiguities" (see Sony, 464 U.S. at 431, 104 S.Ct. at 783) in the copyright law:

"The immediate effect of our copyright law is to secure a fair return for an 'author's' creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good. 'The sole interest of the United States and the primary object in conferring the monopoly,' this Court has said, 'lie in the general benefits derived by the public from the labors of authors.' ... When technological change has rendered its literal terms ambiguous, the Copyright Act must be construed in light of this basic purpose." Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156, 95 S.Ct. 2040, 2044, 45 L.Ed.2d 84 (1975) (footnotes and citations omitted).

The majority opinion attaches considerable weight to the assertions of numerous academic authors that they do not write primarily for money [FN1] and that they want their published writings to be freely copyable. The suggestion is that unlicensed copying will "stimulate artistic creativity for the general public good."

FN1. I imagine that most of these academics are acquainted with the pertinent dictum of Dr. Johnson, see Campbell, --- U.S. at ----, 114 S.Ct. at 1174, and to my ear, at least, their testimony has the ring of truth. One might almost view what they say as an admission against interest.

This suggestion would be more persuasive, I think, if the record did not demonstrate that licensing income is significant to the publishers. It is the publishers who hold the copyrights, of course--and the publishers obviously need economic incentives to publish scholarly works, even if the scholars do not need direct economic incentives to write such works.

*17 The writings of most academic authors, it seems fair to say, lack the general appeal of works by a Walter Lippmann, for example. (Lippmann is the only non-academic author whose writings are involved in this case.) One suspects that the profitability of at least some of the other books at issue here is marginal. If publishers cannot look forward to receiving permission fees, why should they continue publishing marginally profitable books at all? And how will artistic creativity be stimulated if the diminution of economic incentives for publishers to publish academic works means that fewer academic works will be published?

If the decision in this case stands, and if our sister circuits follow our lead, it seems likely that some academics will find it harder to get their books published. Perhaps these academics will not perish as a result-- electronic samizdats may turn out to be the wave of the future, for all I know--but book publishing as we have known it will clearly have taken a hit. An unfair hit, in my judgment. I respectfully dissent from this court's resolution of the fair use issue.
 
 


99 F.3d 1381

65 USLW 2324,

1997 Copr.L.Dec. P 27,579,

114 Ed. Law Rep. 34, 1996 Fed.App. 357P

(Cite as: 99 F.3d 1381)

PRINCETON UNIVERSITY PRESS, Macmillan, Inc., and St. Martin's Press, Inc.,

Plaintiffs-Appellees,

v. 

MICHIGAN DOCUMENT SERVICES, INC., and James M. Smith, Defendants-Appellants.

No. 94-1778.

United States Court of Appeals,

Sixth Circuit.

En Banc Rehearing

Decided Nov. 8, 1996.

NELSON, J., delivered the opinion of the court, in which KENNEDY, BOGGS, NORRIS, SUHRHEINRICH, SILER, BATCHELDER and COLE, JJ., joined. MARTIN, C.J. (pp. 1393-94), MERRITT, J. (pp. 1394-97), and RYAN, J. (pp. 1397- 1412), delivered separate dissenting opinions, with Judge DAUGHTREY joining in Judge MERRITT'S and Judge RYAN'S dissents, and Judge MOORE joining in Judge MERRITT'S dissent.

DAVID A. NELSON, Circuit Judge.

This is a copyright infringement case. The corporate defendant, Michigan Document Services, Inc., is a commercial copyshop that reproduced substantial segments of copyrighted works of scholarship, bound the copies into "coursepacks," and sold the coursepacks to students for use in fulfilling reading assignments given by professors at the University of Michigan. The copyshop acted without permission from the copyright holders, and the main question presented is whether the "fair use" doctrine codified at 17 U.S.C. § 107 obviated the need to obtain such permission.

Answering this question "no," and finding the infringement willful, the district court entered a summary judgment order in which the copyright holders were granted equitable relief and were awarded damages that may have been enhanced for willfulness. Princeton Univ. Press v. Michigan Document Servs., Inc., 855 F.Supp. 905 (E.D.Mich.1994). A three-judge panel of this court reversed the judgment on appeal, but a majority of the active judges of the court subsequently voted to rehear the case en banc. The appeal has now been argued before the full court.

[1] We agree with the district court that the defendants' commercial exploitation of the copyrighted materials did not constitute fair use, and we shall affirm that branch of the district court's judgment. We believe that the district court erred in its finding of willfulness, however, and we shall vacate the damages award because of its possible linkage to that finding...

Ann Arbor, the home of the University of Michigan, is also home to several copyshops. Among them is defendant Michigan Document Services (MDS), a corporation owned by defendant James Smith. We are told that MDS differs from most, if not all, of its competitors in at least one important way: it does not request permission from, nor does it pay agreed royalties to, copyright owners.

Mr. Smith has been something of a crusader against the system under which his competitors have been paying agreed royalties, or "permission fees" as they are known in the trade. The story begins in March of 1991, when Judge Constance Baker Motley, of the United States District Court for the Southern District of New York, decided the first reported case involving the copyright implications of educational coursepacks. See Basic Books, Inc. v. Kinko's Graphics Corp., 758 F.Supp. 1522 (S.D.N.Y.1991), holding that a Kinko's copyshop had violated the copyright statute by creating and selling coursepacks without permission from the publishing houses that held the copyrights. After Kinko's, we are told, many copyshops that had not previously requested permission from copyright holders began to obtain such permission. Mr. Smith chose not to do so. He consulted an attorney, and the attorney apparently advised him that while it was "risky" not to obtain permission, there were flaws in the Kinko 's decision. Mr. Smith also undertook his own study of the fair use doctrine, reading what he could find on this subject in a law library. He ultimately concluded that the Kinko's case had been wrongly decided, and he publicized this conclusion through speeches, writings, and advertisements. His advertisements stressed that professors whose students purchased his coursepacks would not have to worry about delays attendant upon obtaining permission from publishers.

Not surprisingly, Mr. Smith attracted the attention of the publishing industry. Three publishers--Princeton University Press, MacMillan, Inc., and St. Martin's Press, Inc.--eventually brought the present suit against Mr. Smith and his corporation.

Each of the plaintiff publishers maintains a department that processes requests for permission to reproduce portions of copyrighted works. (In addition, copyshops may request such permission through the Copyright Clearance Center, a national clearinghouse.) Macmillan and St. Martin's, both of which are for-profit companies, claim that they generally respond within two weeks to requests for permission to make copies for classroom use. Princeton, a non- profit organization, claims to respond within two to four weeks. Mr. Smith has not put these claims to the test, and he has not paid permission fees.

II

The fair use doctrine, which creates an exception to the copyright monopoly, "permits [and requires] courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that law is designed to foster." Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 577, 114 S.Ct. 1164, 1170, 127 L.Ed.2d 500 (1994), quoting Stewart v. Abend, 495 U.S. 207, 236, 110 S.Ct. 1750, 1768, 109 L.Ed.2d 184 (1990). Initially developed by the courts, the doctrine was codified at 17 U.S.C. § 107 in 1976. Congress used the following formulation in Section 107:

"[T]he fair use of a copyrighted work, including such use by reproduction in copies ... for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include--

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work...."

[2] This language does not provide blanket immunity for "multiple copies for classroom use." Rather, "whether a use referred to in the first sentence of Section 107 is a fair use in a particular case ... depend[s] upon the application of the determinative factors." Campbell, 510 U.S. at 578 n. 9, 114 S.Ct. at 1170 n. 9, quoting S.Rep. No. 94-473, p. 62. [FN1]

FN1. Judge Merritt's dissent rejects this proposition and asserts, in effect, that under the plain language of the copyright statute the making of multiple copies for classroom use constitutes fair use ipso facto. Judge Merritt's reading of the statute would be unassailable if Congress had said that "the use of a copyrighted work for purposes such as teaching (including multiple copies for classroom use) is not an infringement of copyright." But that is not what Congress said. It said, rather, that "the fair use of a copyrighted work, including such use [i.e. including "fair use"] ... for purposes such as ... teaching (including multiple copies for classroom use) ... is not an infringement of copyright."

When read in its entirety, as Judge Ryan's dissent correctly recognizes, the quoted sentence says that fair use of a copyrighted work for purposes such as teaching (including multiple copies for classroom use) is not an infringement. And the statutory factors set forth in the next sentence must be considered in determining whether the making of multiple copies for classroom use is a fair use in "any particular case," just as the statutory factors must be considered in determining whether any other use referred to in the first sentence is a fair use in a particular case. To hold otherwise would be to subvert the intent manifested in the words of the statute and confirmed in the pertinent legislative history.

The four statutory factors may not have been created equal. In determining whether a use is "fair," the Supreme Court has said that the most important factor is the fourth, the one contained in 17 U.S.C. § 107(4). See Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 566, 105 S.Ct. 2218, 2233, 85 L.Ed.2d 588 (1985), citing 3 M. Nimmer, Copyright § 13.05[A], at 13-76 (1984). (But see American Geophysical Union v. Texaco Inc., 60 F.3d 913, 926 (2d Cir.1994), cert. dismissed, --- U.S. ----, 116 S.Ct. 592, 133 L.Ed.2d 486 (1995), suggesting that the Supreme Court may now have abandoned the idea that the fourth factor is of paramount importance.) We take it that this factor, "the effect of the use upon the potential market for or value of the copyrighted work," is at least primus inter pares, figuratively speaking, and we shall turn to it first.

[3][4] The burden of proof as to market effect rests with the copyright holder if the challenged use is of a "noncommercial" nature. The alleged infringer has the burden, on the other hand, if the challenged use is*1386"commercial" in nature. Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 451, 104 S.Ct. 774, 793, 78 L.Ed.2d 574 (1984). In the case at bar the defendants argue that the burden of proof rests with the publishers because the use being challenged is "noncommercial." We disagree.

It is true that the use to which the materials are put by the students who purchase the coursepacks is noncommercial in nature. But the use of the materials by the students is not the use that the publishers are challenging. What the publishers are challenging is the duplication of copyrighted materials for sale by a for-profit corporation that has decided to maximize its profits-- and give itself a competitive edge over other copyshops--by declining to pay the royalties requested by the holders of the copyrights. [FN2]

FN2. Two of the dissents suggest that a copyshop merely stands in the shoes of its customers and makes no "use" of copyrighted materials that differs materially from the use to which the copies are put by the ultimate consumer. But subject to the fair use exception, 17 U.S.C. § 106 gives the copyright owner the "exclusive" right "to reproduce the copyrighted work in copies...." And if the fairness of making copies depends on what the ultimate consumer does with the copies, it is hard to see how the manufacture of pirated editions of any copyrighted work of scholarship could ever be an unfair use. As discussed in Part III A, infra, the dissenters' suggestion--which proposes no limiting principle--runs counter to the legislative history of the Copyright Act and has properly been rejected by the courts.

The defendants' use of excerpts from the books at issue here was no less commercial in character than was The Nation magazine's use of copyrighted material in Harper & Row, where publication of a short article containing excerpts from the still unpublished manuscript of a book by President Ford was held to be an unfair use. Like the students who purchased unauthorized coursepacks, the purchasers of The Nation did not put the contents of the magazine to commercial use--but that did not stop the Supreme Court from characterizing the defendant's use of the excerpts as "a publication [that] was commercial as opposed to nonprofit...." Harper & Row, 471 U.S. at 562, 105 S.Ct. at 2231. And like the use that is being challenged in the case now before us, the use challenged in Harper & Row was "presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright." Id., quoting Sony, 464 U.S. at 451, 104 S.Ct. at 793. [FN3]

FN3. Judge Ryan's dissent maintains that there cannot be an "exploitation" of a copyrighted work unless the exploiter assesses the work's market potential, makes a selection based on content, and realizes a profit from the substance of the work. But the dictionary defines "exploit" in terms that include "to take advantage of, utilize," see Webster's Third New International Dictionary (Unabridged), and nothing in Harper & Row suggests that the Supreme Court intended a narrower or more idiosyncratic meaning.

The dissent also points out that it was magazine employees, not outsiders, who obtained the unpublished manuscript of the Ford book and selected the portions that were included in the offending article. But nothing turns on the "in house" character of such activities. If a college professor had obtained the manuscript, selected the excerpts and peddled the article on a free-lance basis, can anyone doubt that it would have been a violation of the copyright for The Nation to publish the professor's article?

The strength of the Sony presumption may vary according to the context in which it arises, and the presumption disappears entirely where the challenged use is one that transforms the original work into a new artistic creation. See Campbell, 510 U.S. at 587-89, 114 S.Ct. at 1176. Perhaps the presumption is weaker in the present case than it would be in other contexts. There is a presumption of unfairness here, nonetheless, and we are not persuaded that the defendants have rebutted it.

[5] If we are wrong about the existence of the presumption--if the challenged use is not commercial, in other words, and if the plaintiff publishers have the burden of proving an adverse effect upon either the potential market for the copyrighted work or the potential value of the work-- we believe that the publishers have carried the burden of proving a diminution in potential market value.

One test for determining market harm--a test endorsed by the Supreme Court in Sony, Harper & Row, and Campbell--is evocative of Kant's categorical imperative. "[T]o negate fair use," the Supreme Court has said, *1387"one need only show that if the challenged use 'should become widespread, it would adversely affect the potential market for the copyrighted work.' " Harper & Row, 471 U.S. at 568, 105 S.Ct. at 2234, quoting Sony, 464 U.S. at 451, 104 S.Ct. at 793 (emphasis supplied in part). Under this test, we believe, it is reasonably clear that the plaintiff publishers have succeeded in negating fair use.

As noted above, most of the copyshops that compete with MDS in the sale of coursepacks pay permission fees for the privilege of duplicating and selling excerpts from copyrighted works. The three plaintiffs together have been collecting permission fees at a rate approaching $500,000 a year. If copyshops across the nation were to start doing what the defendants have been doing here, this revenue stream would shrivel and the potential value of the copyrighted works of scholarship published by the plaintiffs would be diminished accordingly.

The defendants contend that it is circular to assume that a copyright holder is entitled to permission fees and then to measure market loss by reference to the lost fees. They argue that market harm can only be measured by lost sales of books, not permission fees. But the circularity argument proves too much. Imagine that the defendants set up a printing press and made exact reproductions--asserting that such reproductions constituted "fair use"-- of a book to which they did not hold the copyright. Under the defendants' logic it would be circular for the copyright holder to argue market harm because of lost copyright revenues, since this would assume that the copyright holder had a right to such revenues.

A "circularity" argument indistinguishable from that made by the defendants here was rejected by the Second Circuit in American Geophysical, 60 F.3d at 929-31 (Jon O. Newman, C.J.), where the photocopying of scientific articles for use by Texaco researchers was held to be an unfair use. It is true, the Second Circuit acknowledged, that "a copyright holder can always assert some degree of adverse [e]ffect on its potential licensing revenues as a consequence of [the defendant's use] ... simply because the copyright holder has not been paid a fee to permit that particular use." Id. at 929 n. 17. But such an assertion will not carry much weight if the defendant has "filled a market niche that the [copyright owner] simply had no interest in occupying." Id. at 930 (quoting Twin Peaks Prods., Inc. v. Publications Int'l, Ltd., 996 F.2d 1366, 1377 (2d Cir.1993)). Where, on the other hand, the copyright holder clearly does have an interest in exploiting a licensing market--and especially where the copyright holder has actually succeeded in doing so--"it is appropriate that potential licensing revenues for photocopying be considered in a fair use analysis." American Geophysical, 60 F.3d at 930. Only "traditional, reasonable, or likely to be developed markets" are to be considered in this connection, and even the availability of an existing system for collecting licensing fees will not be conclusive. Id. at 930-31. [FN4] But Congress has implicitly suggested that licensing fees should be recognized in appropriate cases as part of the potential market for or value of the copyrighted work, and it was primarily because of lost licensing revenue that the Second Circuit agreed with the finding of the district court in American Geophysical that "the publishers have demonstrated a substantial harm to the value of their copyrights through [Texaco's] copying." Id. at 931 (quoting the district court opinion (Pierre N. Leval, J.) reported at 802 F.Supp. 1, 21 (S.D.N.Y.1992)).

FN4. Although not conclusive, the existence of an established license fee system is highly relevant:

"[I]t is sensible that a particular unauthorized use should be considered 'more fair' when there is no ready market or means to pay for the use, while such an unauthorized use should be considered 'less fair' when there is a ready market or means to pay for the use. The vice of circular reasoning arises only if the availability of payment is conclusive against fair use." Id. at 931.

The approach followed by Judges Newman and Leval in the American Geophysical litigation is fully consistent with the Supreme Court case law. In Harper & Row, where there is no indication in the opinion that the challenged use caused any diminution in sales of President Ford's memoirs, the Court found harm to the market for the licensing of *1388 excerpts. The Court's reasoning--which was obviously premised on the assumption that the copyright holder was entitled to licensing fees for use of its copyrighted materials--is no more circular than that employed here. And in Campbell, where the Court was unwilling to conclude that the plaintiff had lost licensing revenues under the fourth statutory factor, the Court reasoned that a market for critical parody was not one "that creators of original works would in general develop or license others to develop." Campbell, 510 U.S. at 592, 114 S.Ct. at 1178.

The potential uses of the copyrighted works at issue in the case before us clearly include the selling of permission to reproduce portions of the works for inclusion in coursepacks--and the likelihood that publishers actually will license such reproduction is a demonstrated fact. A licensing market already exists here, as it did not in a case on which the plaintiffs rely, Williams & Wilkins Co. v. United States, 203 Ct.Cl. 74, 487 F.2d 1345 (1973), aff'd by an equally divided Court, 420 U.S. 376, 95 S.Ct. 1344, 43 L.Ed.2d 264 (1975). Thus there is no circularity in saying, as we do say, that the potential for destruction of this market by widespread circumvention of the plaintiffs' permission fee system is enough, under the Harper & Row test, "to negate fair use."

Our final point with regard to the fourth statutory factor concerns the affidavits of the three professors who assigned one or more of the copyrighted works to be read by their students. The defendants make much of the proposition that these professors only assigned excerpts when they would not have required their students to purchase the entire work. But what seems significant to us is that none of these affidavits shows that the professor executing the affidavit would have refrained from assigning the copyrighted work if the position taken by the copyright holder had been sustained beforehand.

It is true that Professor Victor Lieberman, who assigned the excerpt from the Olson and Roberts book on America and Vietnam, raises questions about the workability of the permission systems of "many publishers." In 1991, Professor Lieberman avers, a Kinko's copyshop to which he had given materials for inclusion in a coursepack experienced serious delays in obtaining permissions from unnamed publishers. Professor Lieberman does not say that timely permission could not have been obtained from the publisher of the Olson and Roberts book, however, and he does not say that he would have refrained from assigning the work if the copyshop had been required to pay a permission fee for it.

It is also true that the publisher of one of the copyrighted works in question here (Public Opinion, by Walter Lippmann) would have turned down a request for permission to copy the 45-page excerpt included in a coursepack prepared to the specifications of Professor Donald Kinder. The excerpt was so large that the publisher would have preferred that students buy the book itself, and the work was available in an inexpensive paperback edition. But Professor Kinder does not say that he would have refrained from assigning the excerpt from the Lippmann book if it could not have been included in the coursepack. Neither does he say that he would have refrained from assigning any of the other works mentioned in his affidavit had he known that the defendants would be required to pay permission fees for them.

The third professor, Michael Dawson, assigned a 95-page excerpt from the book on black politics by Nancy Weiss. Professor Dawson does not say that a license was not available from the publisher of the Weiss book, and he does not say that the license fee would have deterred him from assigning the book.

III

In the context of nontransformative uses, at least, and except insofar as they touch on the fourth factor, the other statutory factors seem considerably less important. We shall deal with them relatively briefly.

A

[6] As to "the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes," 17 U.S.C. § 107(1), we have already explained our reasons for concluding*1389that the challenged use is of a commercial nature.

The defendants argue that the copying at issue here would be considered "nonprofit educational" if done by the students or professors themselves. The defendants also note that they can profitably produce multiple copies for less than it would cost the professors or the students to make the same number of copies. Most of the copyshops with which the defendants compete have been paying permission fees, however, and we assume that these shops too can perform the copying on a more cost-effective basis than the professors or students can. This strikes us as a more significant datum than the ability of a black market copyshop to beat the do-it-yourself cost.

As to the proposition that it would be fair use for the students or professors to make their own copies, the issue is by no means free from doubt. We need not decide this question, however, for the fact is that the copying complained of here was performed on a profit-making basis by a commercial enterprise. And "[t]he courts have ... properly rejected attempts by for-profit users to stand in the shoes of their customers making nonprofit or noncommercial uses." Patry, Fair Use in Copyright Law, at 420 n. 34. As the House Judiciary Committee stated in its report on the 1976 legislation,

"[I]t would not be possible for a non-profit institution, by means of contractual arrangements with a commercial copying enterprise, to authorize the enterprise to carry out copying and distribution functions that would be exempt if conducted by the non-profit institution itself." H.R.Rep. No. 1476, 94th Cong., 2d Sess. at 74 (1976), U.S.Code Cong. & Admin.News 5659, 5687-88.

It should be noted, finally, that the degree to which the challenged use has transformed the original copyrighted works--another element in the first statutory factor--is virtually indiscernible. If you make verbatim copies of 95 pages of a 316-page book, you have not transformed the 95 pages very much-- even if you juxtapose them to excerpts from other works and package everything conveniently. This kind of mechanical "transformation" bears little resemblance to the creative metamorphosis accomplished by the parodists in the Campbell case.

B

....

V

We take as our text for the concluding part of this discussion of fair use Justice Stewart's well-known exposition of the correct approach to "ambiguities" (see Sony, 464 U.S. at 431-32, 104 S.Ct. at 783-84) in the copyright law:

"The immediate effect of our copyright law is to secure a fair return for an 'author's' creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good. 'The sole interest of the United States and the primary object in conferring the monopoly,' this Court has said, 'lie in the general benefits derived by the public from the labors of authors.' ... When technological change has rendered its literal terms ambiguous, the Copyright Act must be construed in light of this basic purpose." Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156, 95 S.Ct. 2040, 2044, 45 L.Ed.2d 84 (1975) (footnotes and citations omitted).

The defendants attach considerable weight to the assertions of numerous academic authors that they do not write primarily for money and that they want their published writings to be freely copyable. The defendants suggest that unlicensed copying will "stimulate artistic creativity for the general public good."

This suggestion would be more persuasive if the record did not demonstrate that licensing income is significant to the publishers. It is the publishers who hold the copyrights, of course--and the publishers obviously need economic incentives to publish scholarly works, even if the scholars do not need direct economic incentives to write such works.

The writings of most academic authors, it seems fair to say, lack the general appeal of works by a Walter Lippmann, for example. (Lippmann is the only non- academic author whose writings are involved in this case.) One suspects that the profitability of at least some of the other books at issue here is marginal. If publishers cannot look forward to receiving permission fees, why should they continue publishing marginally profitable books at all? And how will artistic creativity be stimulated if the diminution of economic incentives for publishers to publish academic works means that fewer academic works will be published?

The fact that a liberal photocopying policy may be favored by many academics who are not themselves in the publishing business has little relevance in this connection. As Judge Leval observed in American Geophysical,

"It is not surprising that authors favor liberal photocopying; generally such authors have a far greater interest in the wide dissemination of their work than in royalties--all the more so when they have assigned their royalties to the publisher. But the authors have not risked their capital to achieve dissemination. The publishers have. Once an author has assigned her copyright, her approval or disapproval of photocopying is of no further relevance." 802 F.Supp. at 27.

In the case at bar the district court was not persuaded that the creation of new works of scholarship would be stimulated by depriving publishers of the revenue stream derived from the sale of permissions. Neither are we. On the contrary, it seems to us, the destruction of this revenue stream can only have a deleterious effect upon the incentive to publish academic writings.

*1392 VI

[9] The district court's conclusion that the infringement was willful is somewhat more problematic, in our view. The Copyright Act allows the collection of statutory damages of between $500 and $20,000 for each work infringed. 17 U.S.C. § 504(c)(1). Where the copyright holder establishes that the infringement is willful, the court may increase the award to not more than $100,000. 17 U.S.C. § 504(c)(2). If the court finds that the infringement was innocent, on the other hand, the court may reduce the damages to not less than $200. Id. Here the district court awarded $5,000 per work infringed, characterizing the amount of the award as "a strong admonition from this court." 855 F.Supp. at 913.

Willfulness, under this statutory scheme, has a rather specialized meaning. As Professor Nimmer explains,

"In other contexts ['willfulness'] might simply mean an intent to copy, without necessarily an intent to infringe. It seems clear that as here used, 'willfully' means with knowledge that the defendant's conduct constitutes copyright infringement. Otherwise, there would be no point in providing specially for the reduction of minimum awards in the case of innocent infringement, because any infringement that was nonwillful would necessarily be innocent. This seems to mean, then, that one who has been notified that his conduct constitutes copyright infringement, but who reasonably and in good faith believes the contrary, is not 'willful' for these purposes." Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright § 14.04[B] [3] (1996).

The plaintiffs do not contest the good faith of Mr. Smith's belief that his conduct constituted fair use; only the reasonableness of that belief is challenged. "Reasonableness," in the present context, is essentially a question of law. The facts of the instant case are not in dispute, and the issue is whether the copyright law supported the plaintiffs' position so clearly that the defendants must be deemed as a matter of law to have exhibited a reckless disregard of the plaintiffs' property rights. We review this issue de novo.

Fair use is one of the most unsettled areas of the law. The doctrine has been said to be "so flexible as virtually to defy definition." Time Inc. v. Bernard Geis Assoc., 293 F.Supp. 130, 144 (S.D.N.Y.1968). The potential for reasonable disagreement here is illustrated by the forcefully argued dissents and the now-vacated panel opinion. In the circumstances of this case, we cannot say that the defendants' belief that their copying constituted fair use was so unreasonable as to bespeak willfulness. Accordingly, we shall remand the case for reconsideration of the statutory damages to be awarded.

..

VIII

The grant of summary judgment on the fair use issue is AFFIRMED. The award of damages is VACATED, and the case is REMANDED for reconsideration of damages and for entry of a separate judgment not inconsistent with this opinion.

BOYCE F. MARTIN, Jr., Chief Judge, dissenting.

This case presents for me one of the more obvious examples of how laudable societal objectives, recognized by both the Constitution and statute, have been thwarted by a decided lack of judicial prudence. Copyright protection as embodied in the Copyright Act of 1976 is intended as a public service to both the creator and the consumer of published works. Although the Act grants to individuals limited control over their original works, it was drafted to stimulate the production of those original works for the benefit of the whole nation. The fair use doctrine, which requires unlimited public access to published works in educational settings, is one of the essential checks on the otherwise exclusive property rights given to copyright holders under the Copyright Act.

Ironically, the majority's rigid statutory construction of the Copyright Act grants publishers the kind of power that Article I, Section 8 of the Constitution is designed to guard against. The Copyright Clause grants Congress the power to create copyright interests that are limited in scope. Consequently, the Copyright Act adopted the fair use doctrine to protect society's vested interest in the sharing of ideas and information against pursuits of illegitimate or excessive private proprietary claims. While it may seem unjust that publishers must share, in certain situations, their work- product with others, free of charge, that is not some "unforeseen byproduct of a statutory scheme;" rather, it is the "essence of copyright" and a "constitutional requirement." Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 349, 111 S.Ct. 1282, 1290, 113 L.Ed.2d 358 (1991).

Michigan Document Services provided a service to the University of Michigan that promoted scholarship and higher education. Michigan Document Services was paid for its services; however, that fact does not obviate a fair use claim under these facts. Requiring Michigan Document Services to pay permission fees in this instance is inconsistent with the primary mission of the Copyright Act. The individual rights granted by the Act are subservient to the Act's primary objective, which is the promotion of creativity generally. We must therefore consider the fair use provision of Section 107 of the Act in light of the sum total of public benefits intended by copyright law. In this instance, there is no adverse economic impact on Princeton University Press that can outweigh the benefits provided by Michigan Document Services. Indeed, to presume adverse economic impact, as has the majority, is to presume that the $50,000 in fees currently earned by plaintiff is mandated by the Act in every instance--something I hesitate to presume.

That the majority lends significance to the identity of the person operating the photocopier is a profound indication that its approach is misguided. Given the focus of the Copyright Act, the only practical difference between this case and that of a student making his or her own copies is that commercial photocopying is faster and more cost-effective. Censuring incidental private sector profit reflects little of the essence of copyright law. Would the majority require permission fees of the Professor's teaching assistant who at times must copy, at the Professor's behest, copyrighted materials for dissemination to a class, merely because such assistant is paid an hourly wage by the Professor for this work?

The majority's strict reading of the fair use doctrine promises to hinder scholastic progress nationwide. By charging permission fees on this kind of job, publishers will pass on expenses to colleges and universities that will, of course, pass such fees on to *1394 students. Students may also be harmed if added expenses and delays cause professors to opt against creating such specialized anthologies for their courses. Even if professors attempt to reproduce the benefits of such a customized education, the added textbook cost to students is likely to be prohibitive.

The Copyright Act does not suggest such a result. Rather, the fair use doctrine contemplates the creation and free flow of information; the unhindered flow of such information through, among other things, education in turn spawns the creation and free flow of new information.

In limiting the right to copy published works in the Copyright Act, Congress created an exception for cases like the one before us. When I was in school, you bought your books and you went to the library for supplemental information. To record this supplemental information, in order to learn and benefit from it, you wrote it out long-hand or typed out what you needed--not easy, but effective. Today, with the help of free enterprise and technology, this fundamental means of obtaining information for study has been made easier. Students may now routinely acquire inexpensive copies of the information they need without all of the hassle. The trend of an instructor giving information to a copying service to make a single set of copies for each student for a small fee is just a modern approach to the classic process of education. To otherwise enforce this statute is nonsensical. I therefore dissent.

MERRITT, Circuit Judge, dissenting.

The copying done in this case is permissible under the plain language of the copyright statute that allows "multiple copies for classroom use:" "[T]he fair use of a copyrighted work ... for purposes such as ... teaching (including multiple copies for classroom use ), ... is not an infringement of copyright." 17 U.S.C. § 107 (emphasis added). Also, the injunction the Court has upheld exceeds the protections provided by the Copyright Act of 1976 regardless of whether the use was a fair use and is so grossly overbroad that it violates the First Amendment.

I.

This is a case of first impression with broad consequences. Neither the Supreme Court nor any other court of appeals has interpreted the exception allowing "multiple copies for classroom use" found in § 107 of the copyright statute. There is no legal precedent and no legal history that supports our Court's reading of this phrase in a way that outlaws the widespread practice of copying for classroom use by teachers and students.

For academic institutions, the practical consequences of the Court's decision in this case are highly unsatisfactory, to say the least. Anyone who makes multiple copies for classroom use for a fee is guilty of copyright infringement unless the portion copied is just a few paragraphs long. Chapters from a book or articles from a journal are verboten. No longer may Kinko's and other corner copyshops, or school bookstores, libraries and student-run booths and kiosks copy anything for a fee except a small passage. I do not see why we should so construe plain statutory language that on its face permits "multiple copies for classroom use." The custom of making copies for classroom use for a fee began during my college and law school days forty years ago and is now well-established. I see no justification for overturning this long-established practice.

I disagree with the Court's method of analyzing and explaining the statutory language of § 107 providing a fair use exception. [FN1] Except for "teaching," the statute is cast in*1395general, abstract language that allows fair use for "criticism," "comment," "news reporting" and "research." The scope or extent of copying allowed for these uses is left undefined. Not so for "teaching." This purpose, and this purpose alone, is immediately followed by a definition. The definition allows "multiple copies for classroom use" of copyrighted material. The four factors to be considered, e.g., market effect and the portion of the work used, are of limited assistance when the teaching use at issue fits squarely within the specific language of the statute, i.e., "multiple copies for classroom use." In the present case that is all we have--"multiple copies for classroom use."

FN1. Both the majority opinion and Judge Ryan's dissent approach the determination of whether the use at issue here is infringing solely by use of the four statutory factors set out in § 107. Neither the plain language of the statute nor the case law requires that determination to be made solely on the narrow grounds of those four factors. Because the plain language of the statute is clear concerning "multiple copies for classroom use" and because determinations of infringement are to be made on a case- by-case basis taking into consideration the reasonableness of the copying from an equitable perspective, I do not believe that the four factors are controlling. The specific plain language should be given much more weight in this case than the four abstract considerations of little relevance to copying for classroom use.

There is nothing in the statute that distinguishes between copies made for students by a third person who charges a fee for their labor and copies made by students themselves who pay a fee only for use of the copy machine. Our political economy generally encourages the division and specialization of labor. There is no reason why in this instance the law should discourage high schools, colleges, students and professors from hiring the labor of others to make their copies any more than there is a reason to discourage lawyers from hiring paralegals to make copies for clients and courts. The Court's distinction in this case based on the division of labor--who does the copying--is short sighted and unsound economically.

Our Court cites no authority for the proposition that the intervention of the copyshop changes the outcome of the case. The Court errs by focusing on the "use" of the materials made by the copyshop in making the copies rather than upon the real user of the materials--the students. Neither the District Court nor our Court provides a rationale as to why the copyshops cannot "stand in the shoes" of their customers in making copies for noncommercial, educational purposes where the copying would be fair use if undertaken by the professor or the student personally.

....

Turning to the effect of the use upon the potential market for or value of the copyrighted work, plaintiffs here have failed to demonstrate that the photocopying done by defendant has caused even marginal economic harm to their publishing business. As the Court concedes, the publishers would prefer that students purchase the publications containing the excerpts instead of receiving photocopies of excerpts from the publications. See Maj. op. at 1387 ("the publisher would have preferred that students buy the book itself ....") (emphasis added). What the publishers would "prefer" is not part of the analysis to determine the effect on the potential market. We are to examine what the facts tell us about the market effect. The facts demonstrate that it is only wishful thinking on the part of the publishers that the professors who assigned the works in question would have directed their students to purchase the entire work if the excerpted portions were unavailable for copying. The excerpts copied were a small percentage of the total work, and, as the professors testified, it seems more likely that they would have omitted the work altogether instead of requiring the students to purchase the entire work.

The use complained of by plaintiffs here has been widespread for many years and the publishers have not been able to demonstrate any significant harm to the market for the original works during that time. The publishing industry tried to persuade Congress in 1976 to ban the type of copying done by defendant here. Congress declined to do so and the publishing industry has been trying ever since to work around the language of the statute to expand its rights.

It is also wrong to measure the amount of economic harm to the publishers by loss of a presumed license fee--a criterion that assumes that the publishers have the right to collect such fees in all cases where the user copies any portion of published works. The majority opinion approves of this approach by affirming the issuance of an injunction prohibiting defendant from copying any portion *1397 of plaintiffs' works. It does so without requiring a case-by-case determination of infringement as mandated by the Supreme Court. See discussion infra at 1385-86.

The publishers have no right to such a license fee. Simply because the publishers have managed to make licensing fees a significant source of income from copyshops and other users of their works does not make the income from the licensing a factor on which we must rely in our analysis. If the publishers have no right to the fee in many of the instances in which they are collecting it, we should not validate that practice by now using the income derived from it to justify further imposition of fees. Our job is simply to determine whether the use here falls within the § 107 exception for "multiple copies for classroom use." If it does, the publisher cannot look to us to force the copyshop to pay a fee for the copying.

The Court states that defendant has declined to pay "agreed royalties" to the holders of the copyrights. Maj. op. at 1385. Agreed to by whom? Defendant has not "agreed" to pay the publishers anything. It is fair to label a royalty as "agreed to" only when the publisher has appropriately negotiated a fee with the copyshop for use of the copy in question.

III.

The injunction upheld by the Court, as it stands now, extends the rights of the copyright owners far beyond the limits prescribed by Congress. [FN2] It prohibits defendant from copying any excerpts from plaintiffs' materials, both those now in existence and any that may be published by plaintiffs in the future, regardless of whether the entire work is appropriately protected by copyright or whether the copying is for classroom use or is otherwise a fair use. The injunction prohibits defendant from copying from copyrighted works of the plaintiffs, without regard to length, content or purpose of the copying and without any recognition that the doctrine of fair use exists. The injunction avoids the necessity of determining whether the copying is an infringement or a fair use--any copying and dissemination is forbidden. The injunction also protects future publications of plaintiffs--works that have not yet even been created--without any knowledge as to the level of copyright protection the works would normally be afforded.

FN2. Although the majority has modified its original draft of the opinion to order a remand directing the district court (1) to set out the injunction in a separate order as required by Federal Rule of Civil Procedure 65 and (2) to set forth "more precisely" the scope of the injunction, the remand instruction gives virtually no guidance to the district court about curing the overbreadth of the injunction.

The gross overbreadth of the injunction appears to violate the First Amendment. The purpose of the First Amendment is to facilitate the widest possible dissemination of information. "From a first amendment viewpoint, the effect of an injunction is to restrain the infringing expression altogether--an effect which goes beyond what is necessary to secure the copyright property." Goldstein, Copyright and the First Amendment, 70 Colum. L.Rev. 983, 1030 (1970); see also New Era Pubs. Int'l, ApS v. Henry Holt and Co., 873 F.2d 576, 595-97 (2d Cir.1989) (Oakes, J., concurring), cert. denied, 493 U.S. 1094, 110 S.Ct. 1168, 107 L.Ed.2d 1071 (1990) (discussing tension between First Amendment and injunctions in copyright cases); 3 Nimmer § 14.06[B] at 14-56.2 (where public harm would result from the injunction, courts should award damages in lieu of injunction).

In sum, the injunction imposed here--an injunction that provides blanket copyright protection for all the works of a given publisher without regard to the limitations on copyright protection--is overbroad. The injunction is inappropriate because it prohibits the public from using defendant's copyshop for noninfringing copying of plaintiffs' works.

RYAN, Circuit Judge, dissenting.

....

It is consistent with the copyright scheme to find the use of these coursepacks to be noncommercial, to presume that they do not inflict market harm, and to require the publishers to prove that MDS's use is harmful to the value of the copyrighted works. Presuming that MDS's copying is not harmful to the value of the copyrighted works is appropriate because the identity and content of the excerpts is controlled entirely by persons whose motives are purely educational. Only where the use of copyrighted materials is directed by those seeking financial gain from the substance-based selection is it appropriate to presume that the secondary user is capturing profits that the creators of the works expected to capture and that may be important to maintaining incentives to create new original works. Similarly, the secondary product is appropriately viewed with suspicion--and presumed to upset the creator's incentives--when the party driving the use is primarily seeking to profit from its selections; where the selector acts in order to enrich his own coffers, it is less likely that society will benefit from his actions more than it will suffer from the resulting disincentives to create new works.

With regard to the professor-directed creation of coursepacks, it is not appropriate to presume that the practice of excerpting some materials harms the authors' rightful market and secures a benefit only to the excerpters. The more reasonable presumption is that society benefits from the additional circulation of ideas in the educational setting when those who direct the practice have no personal financial interests that would drive them to copy beyond the parameters of purely educational, and fair, use. The professors have no financial reason to copy mere excerpts when the entire works should be assigned, and their selections should not be presumed to harm the market for the original works and lessen the incentives for authors to write or publishers to publish new works. Rather, such harm must be demonstrated. Society benefits when professors provide diverse materials that are not central to the course but that may enrich or broaden the base of knowledge of the students. Society is not benefitted by establishing a presumption that discourages professors from exposing their students to anything but complete original works even when most of the work is irrelevant to the pedagogical purposes, and students are not benefitted or authors/ publishers justly compensated if students are required to purchase entire works in order to read the 5% or 30% of the work that is relevant to the course.

And so, in my view, the majority's market harm analysis is fatally flawed: If market harm is presumed when excerpts are selected by professors and market harm is proven when fees are not paid, we have ceded benefits entirely to copyright holders when we are actually required to engage in "a sensitive balancing of interests," Sony, 464 U.S. at 455 n. 40, 104 S.Ct. at 795 n. 40, between "the interests of authors ... in the control and exploitation of their writings ... on the one hand, and society's competing interest in the free flow of ideas, information, and commerce on the other hand." Id. at 429, 104 S.Ct. at 782. The majority apparently does not really accept the firmly established principle that copyright monopoly privileges "are neither unlimited nor primarily designed to provide a special private benefit[; rather, the privileges exist to achieve] an important public purpose ... to motivate the creative activity of authors [and ] to give the public appropriate access to their work product." Id.

...

I have concluded that analysis under the first factor establishes the character of the use of coursepacks as noncommercial, and that, therefore, a proper analysis under the fourth factor begins with a rebuttable resumption that the plaintiffs have suffered no market harm and thus have the burden of proof on market effect. See part III.A.ii., supra. But, even in the absence of a presumption against market effect, the fourth factor, correctly construed, weighs in favor of a finding of fair use on the record before us.

For plaintiffs to prevail, there must be at least a meaningful likelihood that future harm to a potential market for the copyrighted works will occur. In Sony, the Court held:

A challenge to a noncommercial use of a copyrighted work requires proof either that the particular use is harmful, or that if it should become widespread, it would adversely affect the potential market for the copyrighted work.... What is necessary is a showing by a preponderance of the evidence that some meaningful likelihood of future harm exists.

Sony, 464 U.S. at 450-51, 104 S.Ct. at 792-93. Works or uses that creators of original works would "in general develop or license others to develop" make up the market for potential derivative uses. Campbell, 510 U.S. at 592, 114 S.Ct. at 1178. The plaintiffs certainly have not demonstrated that the coursepacks affected the market for the original copyrighted works. Neither have they presented any evidence of likely harm to their potential market for derivative works, such as published anthologies. Remarkably, they have limited their showing of "market effect" to the loss of permission fees that they would like to receive from copyshops like MDS. But that is not a "market harm" within the meaning of section 107(4). To prove entitlement to permission fees, the publishers must show market harm and the market harm they claim is the loss of permission fees. MDS's coursepacks would inflict "market harm" if they damaged the value of the original work or the value of derivative products such as coursepacks the publishers might wish to market.

The original panel opinion, now vacated, stated:

[E]vidence of lost permission fees does not bear on market effect. The right to permission fees is precisely what is at issue here. It is circular to argue that a use is unfair, and a fee therefore required, on the basis that the publisher is otherwise deprived of a fee.

Princeton Univ. Press v. Michigan Document Services, No. 94-1778, 1996 WL 54741, at *11 (6th Cir. Feb.12, 1996), reh'g granted, 74 F.3d 1528 (6th Cir.1996). The majority now claims that this charge of circular reasoning "proves too much." The majority asks the reader to

[i]magine that the defendants set up a printing press and made exact reproductions--asserting that such reproductions constituted "fair use"--of a book to which they did not hold the copyright. Under the defendants' logic it would be circular for the copyright holder to argue market harm because of lost copyright revenues, since this would assume that the copyright holder had a right to such revenues.

Maj. op. at 1386.

The majority's logic would always yield a conclusion that the market had been harmed because any fees that a copyright holder could extract from a user if the use were found to be unfair would be "lost" if the use were instead found to be "fair use." The majority acknowledges that "a copyright owner will normally be able to complain that an asserted fair use may cause some loss of revenues in potential licensing fees" but resolves this problem by restricting its consideration of the loss of permission fees to the case of derivative markets that are " 'traditional, reasonable, or likely to be developed markets.' " Maj. op. at 1387 (quoting American Geophysical Union v. Texaco, 60 F.3d 913, 930-31 (2d Cir.), cert. dismissed, --- U.S. ----, 116 S.Ct. 594, 133 L.Ed.2d 514 *1408 (1995)). Under this approach, the majority would find that the copyright holders' monopoly over potential uses of the copyrighted works at issue in Princeton includes "the selling of permission to reproduce portions of the works for inclusion in coursepacks--and the likelihood that publishers actually will license such reproduction is a demonstrated fact." Maj. op. at 1387.

The majority cites Harper & Row and Campbell as support for its reasoning that the mere loss of licensing fees--to which the copyright holder may or may not be entitled--is proof of market harm. The majority notes that in Harper & Row, the plaintiff did not challenge a use (the unauthorized article's direct quotes) based on its impact on sales of the entire work (the not-yet-published memoirs) but based on its harm to the market for the licensing of excerpts. There is a subtle but important distinction to be made between the facts in Harper & Row and the facts in this case. In Harper & Row there was proof that the copyright holder conceived of a potential derivative work (the planned Time Magazine articles) and took meaningful steps to aid in the creation of that derivative work and to capture profits from that creation. The value of the planned derivative work was harmed by the defendants' unauthorized use of the original work; the copyright holder lost its contract with Time Magazine--and concomitant fees--for the exclusive right to print prepublication excerpts of President Ford's memoirs when The Nation Magazine illicitly obtained a copy of the unpublished manuscript and produced a short article quoting from the heart of the manuscript. Thus, in Harper & Row, the value of the original work in a derivative market that was targeted by the copyright holder was harmed by the unauthorized use of the work. There is no similar evidence of injury to the value of a work in this case.

First, there is no evidence that the publishers, here, planned to create any products for a derivative market; no evidence, for instance, that the copyright holders sought to publish or license a competing compilation of excerpts to attract the interest, for instance, of the students in Professor Dawson's interdisciplinary course "Black Americans and the Political System." Second, even if there was evidence that the publishers had contemplated such a product, there is no evidence that the publishers' derivative compilation would be devalued by defendant's production of coursepacks; that is, there is no evidence that such a compilation would earn less because of the existence of coursepacks. In Campbell, 510 U.S. at 591-96, 114 S.Ct. at 1178-79, for instance, the Court declined to find market harm based solely on undisputed evidence that the unauthorized user created a profitable product--rap-parody-- from the original; the Court noted that the rap-parody version was not shown to affect the market for an authorized, non-parodic rap version of the original. It might at first appear that the publishers are, by definition, able to design and market a collection of excerpts and that the existence of other, unauthorized, collections will necessarily replace some of the authorized copies and thereby leach profits that the publishers could otherwise capture. However, neither the facts on this record nor any case law support such a leap in logic.

The fact is that the plaintiffs are not able to create a market for the product that MDS produces. To the extent that MDS serves a market at all, it is one created by the individual professors who have determined which excerpts from which writers they wish to comprise the required reading for a particular course. If the publishers decided to create an anthology of excerpts from its copyrighted works on, for example, "The Black Experience," it would not fill the market niche created by Professor X who is interested in very different materials. Indeed, the publishers do not claim to have lost an account for customized materials with a specific professor because of a copyshop coursepack; nor do they claim to be prepared to enter this highly- customized market. The argument that the publishers seek to enter the derivative market of customized materials by licensing MDS and other copyshops, who create such compilations, and that MDS's publication of unauthorized compilations interferes with their ability to obtain licensing fees from other copyshops simply returns the publishers to their original circular argument *1409 that they are entitled to permission fees, in part, because they are losing permission fees.

..F.

The majority opinion stresses the fact that Congress "initiated and supervised negotiations among interested groups--groups that included authors, publishers, and educators--over specific legislative language [and that m]ost of the language that emerged was enacted into law or was made a part of the committee reports." Maj. op. at 1390. However, what were not "enacted into law," but only made a part of the conference committee reports, are the Classroom Guidelines upon which the majority so heavily relies to decide how the language enacted into law applies. Indisputably, the Classroom Guidelines assure educators that nonprofit copying *1411for educational purposes of "not more than 1,000 words" is fair use when "[t]he inspiration and decision to use the work and the moment of its use for maximum teaching effectiveness are so close in time that it would be unreasonable to expect a timely reply to a request for permission." H.R. REP. NO. 1476 at 68-71. The Classroom Guidelines "prohibit [ ] ... [c]opying ... used to create ... anthologies, compilations or collective works." H.R. REP. NO. 1476 at 69. But, as the majority opinion acknowledges, that language did not survive congressional debate and was not enacted into law.

Despite the well-settled rule that legislative history is irrelevant and inappropriate to consider except to clarify an ambiguity in the text of a statute, the majority relies upon the legislative history without identifying any ambiguity in the statute, but only because "[t]he statutory factors are not models of clarity, ... the fair use issue has long been a particularly troublesome one ..., [and other] courts have often turned to the legislative history when considering fair use questions." Maj. op. at 1390. I wish to emphasize in the strongest terms that it is entirely inappropriate to rely on the Copyright Act's legislative history at all.

As Justice Scalia has observed, "The greatest defect of legislative history is its illegitimacy. We are governed by laws, not by the intentions of legislators." Conroy v. Aniskoff, Jr., 507 U.S. 511, 519, 113 S.Ct. 1562, 1567, 123 L.Ed.2d 229 (1993) (Scalia, J., concurring). The Classroom Guidelines do not become more authoritative by their adoption into a Committee Report. "[I]t is the statute, and not the Committee Report, which is the authoritative expression of the law." City of Chicago v. Environmental Defense Fund, 511 U.S. 328, ----, 114 S.Ct. 1588, 1593, 128 L.Ed.2d 302 (1994). We may not permit the statutory text enacted by both Houses of Congress and signed by the President "to be expanded or contracted by the statements of individual legislators or committees during the course of the enactment process." West Virginia Univ. Hosps., Inc. v. Casey, 499 U.S. 83, 98-99, 111 S.Ct. 1138, 1147, 113 L.Ed.2d 68 (1991). That the Classroom Guidelines are not law should be reason enough for this court to refrain from using them to find infringement, but this is not the only reason to reject out of hand arguments based on legislative history. Committee Reports are unreliable "as a genuine indicator of congressional intent" and "as a safe predictor of judicial construction." Wisconsin Pub. Intervenor v. Mortier, 501 U.S. 597, 617, 111 S.Ct. 2476, 2488, 115 L.Ed.2d 532 (1991) (Scalia, J., concurring). Committee Reports do not accurately indicate congressional intent because they do not "necessarily say anything about what Congress as a whole thought," even if all the members of the Committee "actually adverted to the interpretive point at issue ... [and] were in unanimous agreement on the point." Id. at 620, 111 S.Ct. at 2489. The members of Congress who voted for the statutory language of section 107 could have had any variety of understandings about the application of the fair use factors; all we know for certain is that the full House, the full Senate, and the President, pursuant to the procedures prescribed by the Constitution, enacted into law the text of section 107, and did not enact the standards of the Classroom Guidelines. Id. at 621, 111 S.Ct. at 2490. Committee Reports do not reliably further consistent judicial construction. I subscribe wholeheartedly to Judge Harold Leventhal's observation that "the use of legislative history [is] the equivalent of entering a crowded cocktail party and looking over the heads of the guests for one's friends." Conroy, 507 U.S. at 519, 113 S.Ct. at 1567 (Scalia, J., concurring). "We use [Committee Reports] when it is convenient, and ignore them when it is not." Mortier, 501 U.S. at 617, 111 S.Ct. at 2488.

...

The case for copyright infringement is very weak indeed if the court must rely on the unenacted theater of Committee Reports to find infringement. The fact that Congress saw fit, very likely in the interests of political expediency, to pay unusual deference to the "agreement" of interested parties about what they would like the law to be, even to the point of declaring (but not in the statute) that the parties' agreement was part of the committee's "understanding" of fair use, does not affect the rule of construction that binds this court.

In sum, even if the four statutory factors of section 107 are not "models of clarity" and their application to the facts of this case is "troublesome"--a challenge of the kind federal appellate judges are paid to face every day--the four factors are not ambiguous. Therefore, we may not properly resort to legislative history. I am satisfied to rely exclusively upon the evidence and lack of evidence on the record before us and the plain language of the Copyright Act and its construction in the case law; and they lead me to conclude that MDS's compilation into coursepacks of excerpts selected by professors is a "fair use" of the copyrighted materials.

IV.

For all the foregoing reasons, I conclude that MDS did not infringe upon the copyrights of the publishers.

 


Fair Use -- Decompilation

977 F.2d 1510

61 USLW 2254,

1992 Copr.L.Dec. P 27,001,

24 U.S.P.Q.2d 1561

(Cite as: 977 F.2d 1510) 

SEGA ENTERPRISES LTD., a Japanese corporation, Plaintiff-Appellee,

v.

ACCOLADE, INC., a California corporation, Defendant-Appellant.

No. 92-15655.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted July 20, 1992.

Decided Oct. 20, 1992.

As Amended Jan. 6, 1993.

Appeal from the United States District Court for the Northern District of California.

Before: CANBY, REINHARDT, and LEAVY, Circuit Judges.

REINHARDT, Circuit Judge:

This case presents several difficult questions of first impression involving our copyright and trademark laws. [FN1] We are asked *1514to determine, first, whether the Copyright Act permits persons who are neither copyright holders nor licensees to disassemble a copyrighted computer program in order to gain an understanding of the unprotected functional elements of the program. In light of the public policies underlying the Act, we conclude that, when the person seeking the understanding has a legitimate reason for doing so and when no other means of access to the unprotected elements exists, such disassembly is as a matter of law a fair use of the copyrighted work. Second, we must decide the legal consequences under the Lanham Trademark Act of a computer manufacturer's use of a security system that affords access to its computers to software cartridges that include an initialization code which triggers a screen display of the computer manufacturer's trademark. The computer manufacturer also manufactures software cartridges; those cartridges all contain the initialization code. The question is whether the computer manufacturer may enjoin competing cartridge manufacturers from gaining access to its computers through the use of the code on the ground that such use will result in the display of a "false" trademark. Again, our holding is based on the public policies underlying the statute. We hold that when there is no other method of access to the computer that is known or readily available to rival cartridge manufacturers, the use of the initialization code by a rival does not violate the Act even though that use triggers a misleading trademark display. Accordingly, we reverse the district court's grant of a preliminary injunction in favor of plaintiff-appellee Sega Enterprises, Ltd. on its claims of copyright and trademark infringement. We decline, however, to order that an injunction pendente lite issue precluding Sega from continuing to use its security system, even though such use may result in a certain amount of false labeling. We prefer to leave the decision on that question to the district court initially.

FN1. The recent decision by the Federal Circuit in Atari Games Corp. v. Nintendo of America, Inc., 975 F.2d 832 (Fed.Cir.1992), which discusses a number of the issues we decide here, is consistent both with our analysis and the result we reach.

I. Background

Plaintiff-appellee Sega Enterprises, Ltd. ("Sega"), a Japanese corporation, and its subsidiary, Sega of America, develop and market video entertainment systems, including the "Genesis" console (distributed in Asia under the name "Mega-Drive") and video game cartridges. Defendant-appellant Accolade, Inc., is an independent developer, manufacturer, and marketer of computer entertainment software, including game cartridges that are compatible with the Genesis console, as well as game cartridges that are compatible with other computer systems.

Sega licenses its copyrighted computer code and its "SEGA" trademark to a number of independent developers of computer game software. Those licensees develop and sell Genesis-compatible video games in competition with Sega. Accolade is not and never has been a licensee of Sega. Prior to rendering its own games compatible with the Genesis console, Accolade explored the possibility of entering into a licensing agreement with Sega, but abandoned the effort because the agreement would have required that Sega be the exclusive manufacturer of all games produced by Accolade.

Accolade used a two-step process to render its video games compatible with the Genesis console. First, it "reverse engineered" Sega's video game programs in order to discover the requirements for compatibility with the Genesis console. As part of the reverse engineering process, Accolade transformed the machine-readable object code contained in commercially available copies of Sega's game cartridges into human-readable source code using a process called "disassembly" or "decompilation". [FN2] Accolade purchased a Genesis*1515console and three Sega game cartridges, wired a decompiler into the console circuitry, and generated printouts of the resulting source code. Accolade engineers studied and annotated the printouts in order to identify areas of commonality among the three game programs. They then loaded the disassembled code back into a computer, and experimented to discover the interface specifications for the Genesis console by modifying the programs and studying the results. At the end of the reverse engineering process, Accolade created a development manual that incorporated the information it had discovered about the requirements for a Genesis-compatible game. According to the Accolade employees who created the manual, the manual contained only functional descriptions of the interface requirements and did not include any of Sega's code.

FN2. Computer programs are written in specialized alphanumeric languages, or "source code". In order to operate a computer, source code must be translated into computer readable form, or "object code". Object code uses only two symbols, 0 and 1, in combinations which represent the alphanumeric characters of the source code. A program written in source code is translated into object code using a computer program called an "assembler" or "compiler", and then imprinted onto a silicon chip for commercial distribution. Devices called "disassemblers" or "decompilers" can reverse this process by "reading" the electronic signals for "0" and "1" that are produced while the program is being run, storing the resulting object code in computer memory, and translating the object code into source code. Both assembly and disassembly devices are commercially available, and both types of devices are widely used within the software industry.

In the second stage, Accolade created its own games for the Genesis. According to Accolade, at this stage it did not copy Sega's programs, but relied only on the information concerning interface specifications for the Genesis that was contained in its development manual. Accolade maintains that with the exception of the interface specifications, none of the code in its own games is derived in any way from its examination of Sega's code. In 1990, Accolade released "Ishido", a game which it had originally developed and released for use with the Macintosh and IBM personal computer systems, for use with the Genesis console.

Even before Accolade began to reverse engineer Sega's games, Sega had grown concerned about the rise of software and hardware piracy in Taiwan and other Southeast Asian countries to which it exported its products. Taiwan is not a signatory to the Berne Convention and does not recognize foreign copyrights. Taiwan does allow prosecution of trademark counterfeiters. However, the counterfeiters had discovered how to modify Sega's game programs to blank out the screen display of Sega's trademark before repackaging and reselling the games as their own. Accordingly, Sega began to explore methods of protecting its trademark rights in the Genesis and Genesis-compatible games. While the development of its own trademark security system (TMSS) was pending, Sega licensed a patented TMSS for use with the Genesis home entertainment system.

The most recent version of the Genesis console, the "Genesis III", incorporates the licensed TMSS. When a game cartridge is inserted, the microprocessor contained in the Genesis III searches the game program for four bytes of data consisting of the letters "S-E-G-A" (the "TMSS initialization code"). If the Genesis III finds the TMSS initialization code in the right location, the game is rendered compatible and will operate on the console. In such case, the TMSS initialization code then prompts a visual display for approximately three seconds which reads "PRODUCED BY OR UNDER LICENSE FROM SEGA ENTERPRISES LTD" (the "Sega Message"). All of Sega's game cartridges, including those disassembled by Accolade, contain the TMSS initialization code.

Accolade learned of the impending release of the Genesis III in the United States in January, 1991, when the Genesis III was displayed at a consumer electronics show. When a demonstration at the consumer electronics show revealed that Accolade's "Ishido" game cartridges would not operate on the Genesis III, Accolade returned to the drawing board. During the reverse engineering process, Accolade engineers had discovered a small segment of code--the TMSS initialization code--that was included in the "power-up" sequence of every Sega game, but that had no identifiable function. The games would operate on the original Genesis console even if the code segment was removed. Mike Lorenzen, *1516 the Accolade engineer with primary responsibility for reverse engineering the interface procedures for the Genesis console, sent a memo regarding the code segment to Alan Miller, his supervisor and the current president of Accolade, in which he noted that "it is possible that some future Sega peripheral device might require it for proper initialization."

In the second round of reverse engineering, Accolade engineers focused on the code segment identified by Lorenzen. After further study, Accolade added the code to its development manual in the form of a standard header file to be used in all games. The file contains approximately twenty to twenty-five bytes of data. Each of Accolade's games contains a total of 500,000 to 1,500,000 bytes. According to Accolade employees, the header file is the only portion of Sega's code that Accolade copied into its own game programs.

In 1991, Accolade released five more games for use with the Genesis III, "Star Control", "Hardball!", "Onslaught", "Turrican", and "Mike Ditka Power Football." With the exception of "Mike Ditka Power Football", all of those games, like "Ishido", had originally been developed and marketed for use with other hardware systems. All contained the standard header file that included the TMSS initialization code. According to Accolade, it did not learn until after the Genesis III was released on the market in September, 1991, that in addition to enabling its software to operate on the Genesis III, the header file caused the display of the Sega Message. All of the games except "Onslaught" operate on the Genesis III console; apparently, the programmer who translated "Onslaught" for use with the Genesis system did not place the TMSS initialization code at the correct location in the program.

All of Accolade's Genesis-compatible games are packaged in a similar fashion. The front of the box displays Accolade's "Ballistic" trademark and states "for use with Sega Genesis and Mega Drive Systems." The back of the box contains the following statement: "Sega and Genesis are registered trademarks of Sega Enterprises, Ltd. Game 1991 Accolade, Inc. All rights reserved. Ballistic is a trademark of Accolade, Inc. Accolade, Inc. is not associated with Sega Enterprises, Ltd. All product and corporate names are trademarks and registered trademarks of their respective owners."

Sega filed suit against Accolade on October 31, 1991, alleging trademark infringement and false designation of origin in violation of sections 32(1) and 43(a) of the Lanham Act, 15 U.S.C. §§ 1114(1)(a), 1125(a). [FN3] On November 29, 1991, Sega amended its complaint to include a claim for copyright infringement. Accolade filed a counterclaim against Sega for false designation of origin under section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). [FN4] The parties filed cross-motions for preliminary injunctions on their respective claims.

FN3. The complaint also included state law claims for common law trademark infringement, dilution, unfair competition, and false or misleading statements. None of the state law claims are at issue in this appeal.

FN4. Accolade also asserted state law counterclaims for unfair competition, false or misleading statements, and intentional interference with prospective economic advantage. Again, the state law counterclaims are not at issue here.

After expedited discovery and a hearing, the district court granted Sega's motion. Prior to the hearing, Sega introduced the declaration of Takeshi Nagashima, an employee of Sega. Nagashima stated that it was possible either to create a game program which did not contain the TMSS code but would still operate on the Genesis III, or to modify a game program so that the Sega Message would not appear when the game cartridge was inserted. Nagashima stated that he had been able to make both modifications using standard components, at a total extra cost of approximately fifty cents. At the hearing, counsel for Sega produced two game cartridges which, he represented, contained the modifications made by Nagashima, and demonstrated to the district judge that the Sega Message *1517 did not appear when the cartridges were inserted into a Genesis III console. Sega offered to make the cartridges available for inspection by Accolade's counsel, but declined to let Accolade's software engineers examine the cartridges or to reveal the manner in which the cartridges had been modified. The district court concluded that the TMSS code was not functional and that Accolade could not assert a functionality defense to Sega's claim of trademark infringement.

With respect to Sega's copyright claim, the district court rejected Accolade's contention that intermediate copying of computer object code does not constitute infringement under the Copyright Act. It found that Accolade had disassembled Sega's code for a commercial purpose, and that Sega had likely lost sales of its games as a result of Accolade's copying. The court further found that there were alternatives to disassembly that Accolade could have used in order to study the functional requirements for Genesis compatibility. Accordingly, it also rejected Accolade's fair use defense to Sega's copyright infringement claim.

Based on its conclusion that Sega is likely to succeed on the merits of its claims for copyright and trademark infringement, on April 3, 1992, the district court enjoined Accolade from: (1) disassembling Sega's copyrighted code; (2) using or modifying Sega's copyrighted code; (3) developing, manufacturing, distributing, or selling Genesis-compatible games that were created in whole or in part by means that included disassembly; and (4) manufacturing, distributing, or selling any Genesis-compatible game that prompts the Sega Message. On April 9, 1992, in response to a request from Sega, the district court modified the preliminary injunction order to require the recall of Accolade's infringing games within ten business days.

On April 14, 1992, Accolade filed a motion in the district court for a stay of the preliminary injunction pending appeal. When the district court failed to rule on the motion for a stay by April 21, ten business days after the April 9 recall order, Accolade filed a motion for an emergency stay in this court pursuant to 9th Cir.R. 27-3, together with its notice of appeal. On April 23, we stayed the April 9 recall order. The April 3 preliminary injunction order remained in effect until August 28, when we ordered it dissolved and announced that this opinion would follow.

***

III. Copyright Issues

Accolade raises four arguments in support of its position that disassembly of the object code in a copyrighted computer program does not constitute copyright infringement. First, it maintains that intermediate copying does not infringe the exclusive rights granted to copyright owners in section 106 of the Copyright Act unless the end product of the copying is substantially similar to the copyrighted work. Second, it argues that disassembly of object code in order to gain an understanding of the ideas and functional concepts embodied in the code is lawful under section 102(b) of the Act, which exempts ideas and functional concepts from copyright protection. Third, it suggests that disassembly is authorized by section 117 of the Act, which entitles the lawful owner of a copy of a computer program to load the program into a computer. Finally, Accolade contends*1518that disassembly of object code in order to gain an understanding of the ideas and functional concepts embodied in the code is a fair use that is privileged by section 107 of the Act.

Neither the language of the Act nor the law of this circuit supports Accolade's first three arguments. Accolade's fourth argument, however, has merit. Although the question is fairly debatable, we conclude based on the policies underlying the Copyright Act that disassembly of copyrighted object code is, as a matter of law, a fair use of the copyrighted work if such disassembly provides the only means of access to those elements of the code that are not protected by copyright and the copier has a legitimate reason for seeking such access. Accordingly, we hold that Sega has failed to demonstrate a likelihood of success on the merits of its copyright claim. Because on the record before us the hardships do not tip sharply (or at all) in Sega's favor, the preliminary injunction issued in its favor must be dissolved, at least with respect to that claim.

A. Intermediate Copying

[2] We have previously held that the Copyright Act does not distinguish between unauthorized copies of a copyrighted work on the basis of what stage of the alleged infringer's work the unauthorized copies represent. Walker v. University Books, 602 F.2d 859, 864 (9th Cir.1979) ("[T]he fact that an allegedly infringing copy of a protected work may itself be only an inchoate representation of some final product to be marketed commercially does not in itself negate the possibility of infringement."). Our holding in Walker was based on the plain language of the Act. Section 106 grants to the copyright owner the exclusive rights "to reproduce the work in copies", "to prepare derivative works based upon the copyrighted work", and to authorize the preparation of copies and derivative works. 17 U.S.C. § 106(1)-(2). Section 501 provides that "[a]nyone who violates any of the exclusive rights of the copyright owner as provided by sections 106 through 118 ... is an infringer of the copyright." Id. § 501(a). On its face, that language unambiguously encompasses and proscribes "intermediate copying". Walker, 602 F.2d at 863-64; see also Walt Disney Productions v. Filmation Associates, 628 F.Supp. 871, 875-76 (C.D.Cal.1986).

In order to constitute a "copy" for purposes of the Act, the allegedly infringing work must be fixed in some tangible form, "from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device." 17 U.S.C. § 101. The computer file generated by the disassembly program, the printouts of the disassembled code, and the computer files containing Accolade's modifications of the code that were generated during the reverse engineering process all satisfy that requirement. The intermediate copying done by Accolade therefore falls squarely within the category of acts that are prohibited by the statute.

Accolade points to a number of cases that it argues establish the lawfulness of intermediate copying. Most of the cases involved the alleged copying of books, scripts, or literary characters. See v. Durang, 711 F.2d 141 (9th Cir.1983); Warner Bros. v. ABC, 654 F.2d 204 (2d Cir.1981); Miller v. Universal City Studios, Inc., 650 F.2d 1365 (5th Cir.1981); Walker v. Time Life Films, Inc., 615 F.Supp. 430 (S.D.N.Y.1985), aff'd, 784 F.2d 44 (2d Cir.), cert. denied, 476 U.S. 1159, 106 S.Ct. 2278, 90 L.Ed.2d 721 (1986); Davis v. United Artists, Inc., 547 F.Supp. 722 (S.D.N.Y.1982); Fuld v. NBC, 390 F.Supp. 877 (S.D.N.Y.1975); Cain v. Universal Pictures Co., 47 F.Supp. 1013 (S.D.Cal.1942). In each case, however, the eventual lawsuit alleged infringement only as to the final work of the defendants. We conclude that this group of cases does not alter or limit the holding of Walker.

The remaining cases cited by Accolade, like the case before us, involved intermediate copying of computer code as an initial step in the development of a competing product. Computer Assoc. Int'l v. Altai, Inc., 1992 WL 372273, 23 U.S.P.Q.2d (BNA) 1241 (2d Cir.1992) ("CAI"); NEC Corp. v. Intel Corp., 10 U.S.P.Q.2d 1177, 1989 WL 67434 (N.D.Cal.1989); E.F. Johnson Co. v.*1519Uniden Corp., 623 F.Supp. 1485 (D.Minn.1985). In each case, the court based its determination regarding infringement solely on the degree of similarity between the allegedly infringed work and the defendant's final product. A close reading of those cases, however, reveals that in none of them was the legality of the intermediate copying at issue. Sega cites an equal number of cases involving intermediate copying of copyrighted computer code to support its assertion that such copying is prohibited. Atari Games Corp. v. Nintendo of America, Inc., 18 U.S.P.Q.2d 1935, 1991 WL 57304 (N.D.Cal.1991); SAS Institute, Inc. v. S & H Computer Systems, Inc., 605 F.Supp. 816 (M.D.Tenn.1985); S & H Computer Systems, Inc. v. SAS Institute, Inc., 568 F.Supp. 416 (M.D.Tenn.1983); Hubco Data Products v. Management Assistance, Inc., 219 U.S.P.Q. 450 (D.Idaho 1983). Again, however, it appears that the question of the lawfulness of intermediate copying was not raised in any of those cases.

In summary, the question whether intermediate copying of computer object code infringes the exclusive rights granted to the copyright owner in section 106 of the Copyright Act is a question of first impression. In light of the unambiguous language of the Act, we decline to depart from the rule set forth in Walker for copyrighted works generally. Accordingly, we hold that intermediate copying of computer object code may infringe the exclusive rights granted to the copyright owner in section 106 of the Copyright Act regardless of whether the end product of the copying also infringes those rights. If intermediate copying is permissible under the Act, authority for such copying must be found in one of the statutory provisions to which the rights granted in section 106 are subject.

B. The Idea/Expression Distinction

[3] Accolade next contends that disassembly of computer object code does not violate the Copyright Act because it is necessary in order to gain access to the ideas and functional concepts embodied in the code, which are not protected by copyright. 17 U.S.C. § 102(b). Because humans cannot comprehend object code, it reasons, disassembly of a commercially available computer program into human-readable form should not be considered an infringement of the owner's copyright. Insofar as Accolade suggests that disassembly of object code is lawful per se, it seeks to overturn settled law.

Accolade's argument regarding access to ideas is, in essence, an argument that object code is not eligible for the full range of copyright protection. Although some scholarly authority supports that view, we have previously rejected it based on the language and legislative history of the Copyright Act. Johnson Controls, Inc. v. Phoenix Control Sys., Inc., 886 F.2d 1173, 1175 (9th Cir.1989); Apple Computer, Inc. v. Formula Int'l Inc., 725 F.2d 521, 524-25 (9th Cir.1984); see also Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240, 1246-48 (3d Cir.1983), cert. dismissed, 464 U.S. 1033, 104 S.Ct. 690, 79 L.Ed.2d 158 (1984).

[4] As recommended by the National Commission on New Technological Uses of Copyrighted Works (CONTU), the 1980 amendments to the Copyright Act unambiguously extended copyright protection to computer programs. Pub.L. 96- 517, sec. 10, 94 Stat. 3028 (1980) (codified at 17 U.S.C. §§ 101, 117); see National Commission on New Technological Uses of Copyrighted Works, Final Report 1 (1979) [CONTU Report]. [FN5] "[T]he Act makes no distinction between the copyrightability of those programs which directly interact with the computer user and those which simply manage the computer system." Formula, 725 F.2d at 525. Nor does the Act require that a work be directly accessible to humans in order to be eligible for copyright protection. Rather, it extends protection to all original works "which ... can be perceived, reproduced, or otherwise communicated, *1520either directly or with the aid of a machine or device." 17 U.S.C. § 102(a); see Formula, 725 F.2d at 525. The statutory language, read together with the CONTU report, leads inexorably to the conclusion that the copyright in a computer program extends to the object code version of the program. Formula, 725 F.2d at 525; Franklin, 714 F.2d at 1248; CONTU Report at 21.

FN5. Congress adopted all of the statutory changes recommended by CONTU verbatim. Subsequent Congresses, the courts, and commentators have regarded the CONTU Report as the authoritative guide to congressional intent.

Nor does a refusal to recognize a per se right to disassemble object code lead to an absurd result. The ideas and functional concepts underlying many types of computer programs, including word processing programs, spreadsheets, and video game displays, are readily discernible without the need for disassembly, because the operation of such programs is visible on the computer screen. The need to disassemble object code arises, if at all, only in connection with operations systems, system interface procedures, and other programs that are not visible to the user when operating--and then only when no alternative means of gaining an understanding of those ideas and functional concepts exists. In our view, consideration of the unique nature of computer object code thus is more appropriate as part of the case-by-case, equitable "fair use" analysis authorized by section 107 of the Act. See infra Part III(D). Accordingly, we reject Accolade's second argument.

C. Section 117

[5] Section 117 of the Copyright Act allows the lawful owner of a copy of a computer program to copy or adapt the program if the new copy or adaptation "is created as an essential step in the utilization of the computer program in conjunction with a machine and ... is used in no other manner." 17 U.S.C. § 117(1). Accolade contends that section 117 authorizes disassembly of the object code in a copyrighted computer program.

Section 117 was enacted on the recommendation of CONTU, which noted that "[b]ecause the placement of any copyrighted work into a computer is the preparation of a copy [since the program is loaded into the computer's memory], the law should provide that persons in rightful possession of copies of programs be able to use them freely without fear of exposure to copyright liability." CONTU Report at 13. We think it is clear that Accolade's use went far beyond that contemplated by CONTU and authorized by section 117. Section 117 does not purport to protect a user who disassembles object code, converts it from assembly into source code, and makes printouts and photocopies of the refined source code version. [FN6]

FN6. We need not decide whether section 117 protects only the use intended by the copyright owner, as Sega argues. See Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 261 (5th Cir.1988) (authorization of section 117(1) not limited to use intended by copyright owner).

D. Fair Use

[6] Accolade contends, finally, that its disassembly of copyrighted object code as a necessary step in its examination of the unprotected ideas and functional concepts embodied in the code is a fair use that is privileged by section 107 of the Act. Because, in the case before us, disassembly is the only means of gaining access to those unprotected aspects of the program, and because Accolade has a legitimate interest in gaining such access (in order to determine how to make its cartridges compatible with the Genesis console), we agree with Accolade. Where there is good reason for studying or examining the unprotected aspects of a copyrighted computer program, disassembly for purposes of such study or examination constitutes a fair use.

1.

[7] As a preliminary matter, we reject Sega's contention that the assertion of a fair use defense in connection with the disassembly of object code is precluded by statute. First, Sega argues that not only does section 117 of the Act not authorize disassembly of object code, but it also constitutes a legislative determination that any copying of a computer program other than that authorized by section 117 cannot be considered a fair use of that program under *1521 section 107. That argument verges on the frivolous. Each of the exclusive rights created by section 106 of the Copyright Act is expressly made subject to all of the limitations contained in sections 107 through 120. 17 U.S.C. § 106. Nothing in the language or the legislative history of section 117, or in the CONTU Report, suggests that section 117 was intended to preclude the assertion of a fair use defense with respect to uses of computer programs that are not covered by section 117, nor has section 107 been amended to exclude computer programs from its ambit.

Moreover, sections 107 and 117 serve entirely different functions. Section 117 defines a narrow category of copying that is lawful per se. 17 U.S.C. § 117. Section 107, by contrast, establishes a defense to an otherwise valid claim of copyright infringement. It provides that particular instances of copying that otherwise would be actionable are lawful, and sets forth the factors to be considered in determining whether the defense applies. Id. § 107. The fact that Congress has not chosen to provide a per se exemption to section 106 for disassembly does not mean that particular instances of disassembly may not constitute fair use.

[8] Second, Sega maintains that the language and legislative history of section 906 of the Semiconductor Chip Protection Act of 1984 (SCPA) establish that Congress did not intend that disassembly of object code be considered a fair use. Section 906 of the SCPA authorizes the copying of the "mask work" on a silicon chip in the course of reverse engineering the chip. 17 U.S.C. § 906. The mask work in a standard ROM chip, such as those used in the Genesis console and in Genesis-compatible cartridges, is a physical representation of the computer program that is embedded in the chip. The zeros and ones of binary object code are represented in the circuitry of the mask work by open and closed switches. Sega contends that Congress's express authorization of copying in the particular circumstances set forth in section 906 constitutes a determination that other forms of copying of computer programs are prohibited.

The legislative history of the SCPA reveals, however, that Congress passed a separate statute to protect semiconductor chip products because it believed that semiconductor chips were intrinsically utilitarian articles that were not protected under the Copyright Act. H.R.Rep. No. 781, 98th Cong., 2d Sess. 8- 10, reprinted in 1984 U.S.C.C.A.N. 5750, 5757-59. Accordingly, rather than amend the Copyright Act to extend traditional copyright protection to chips, it enacted "a sui generis form of protection, apart from and independent of the copyright laws." Id. at 10, 1984 U.S.C.C.A.N. at 5759. Because Congress did not believe that semiconductor chips were eligible for copyright protection in the first instance, the fact that it included an exception for reverse engineering of mask work in the SCPA says nothing about its intent with respect to the lawfulness of disassembly of computer programs under the Copyright Act. Nor is the fact that Congress did not contemporaneously amend the Copyright Act to permit disassembly significant, since it was focusing on the protection to be afforded to semiconductor chips. Here we are dealing not with an alleged violation of the SCPA, but with the copying of a computer program, which is governed by the Copyright Act. Moreover, Congress expressly stated that it did not intend to "limit, enlarge or otherwise affect the scope, duration, ownership or subsistence of copyright protection ... in computer programs, data bases, or any other copyrightable works embodied in semiconductor chip products." Id. at 28, 1984 U.S.C.C.A.N. at 5777. Accordingly, Sega's second statutory argument also fails. We proceed to consider Accolade's fair use defense.

2.

[9][10] Section 107 lists the factors to be considered in determining whether a particular use is a fair one. Those factors include:

(1) the purpose and character of the use, including whether such use is of a commercial*1522nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

17 U.S.C. § 107. The statutory factors are not exclusive. Rather, the doctrine of fair use is in essence "an equitable rule of reason." Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 560, 105 S.Ct. 2218, 2230, 85 L.Ed.2d 588 (1985) (quoting H.R.Rep. No. 1476, 94th Cong., 2d Sess. 65, reprinted in 1976 U.S.C.C.A.N. 5659, 5679). Fair use is a mixed question of law and fact. Id. "Where the district court has found facts sufficient to evaluate each of the statutory factors," an appellate court may resolve the fair use question as a matter of law. Id.

In determining that Accolade's disassembly of Sega's object code did not constitute a fair use, the district court treated the first and fourth statutory factors as dispositive, and ignored the second factor entirely. Given the nature and characteristics of Accolade's direct use of the copied works, the ultimate use to which Accolade put the functional information it obtained, and the nature of the market for home video entertainment systems, we conclude that neither the first nor the fourth factor weighs in Sega's favor. In fact, we conclude that both factors support Accolade's fair use defense, as does the second factor, a factor which is important to the resolution of cases such as the one before us.

(a)

[11] With respect to the first statutory factor, we observe initially that the fact that copying is for a commercial purpose weighs against a finding of fair use. Harper & Row, 471 U.S. at 562, 105 S.Ct. at 2231. However, the presumption of unfairness that arises in such cases can be rebutted by the characteristics of a particular commercial use. Hustler Magazine, Inc. v. Moral Majority, Inc., 796 F.2d 1148, 1152 (9th Cir.1986); see also Maxtone- Graham v. Burtchaell, 803 F.2d 1253, 1262 (2d Cir.1986), cert. denied, 481 U.S. 1059, 107 S.Ct. 2201, 95 L.Ed.2d 856 (1987). Further "[t]he commercial nature of a use is a matter of degree, not an absolute...." Maxtone-Graham, 803 F.2d at 1262.

[12] Sega argues that because Accolade copied its object code in order to produce a competing product, the Harper & Row presumption applies and precludes a finding of fair use. That analysis is far too simple and ignores a number of important considerations. We must consider other aspects of "the purpose and character of the use" as well. As we have noted, the use at issue was an intermediate one only and thus any commercial "exploitation" was indirect or derivative.

The declarations of Accolade's employees indicate, and the district court found, that Accolade copied Sega's software solely in order to discover the functional requirements for compatibility with the Genesis console--aspects of Sega's programs that are not protected by copyright. 17 U.S.C. § 102(b). With respect to the video game programs contained in Accolade's game cartridges, there is no evidence in the record that Accolade sought to avoid performing its own creative work. Indeed, most of the games that Accolade released for use with the Genesis console were originally developed for other hardware systems. Moreover, with respect to the interface procedures for the Genesis console, Accolade did not seek to avoid paying a customarily charged fee for use of those procedures, nor did it simply copy Sega's code; rather, it wrote its own procedures based on what it had learned through disassembly. Taken together, these facts indicate that although Accolade's ultimate purpose was the release of Genesis-compatible games for sale, its direct purpose in copying Sega's code, and thus its direct use of the copyrighted material, was simply to study the functional requirements for Genesis compatibility so that it could modify existing games and make them usable with the Genesis console. Moreover, as we discuss below, no other method of studying those requirements was available to Accolade. On these facts, we conclude that Accolade copied *1523 Sega's code for a legitimate, essentially non-exploitative purpose, and that the commercial aspect of its use can best be described as of minimal significance.

[13][14] We further note that we are free to consider the public benefit resulting from a particular use notwithstanding the fact that the alleged infringer may gain commercially. See Hustler, 796 F.2d at 1153 (quoting MCA, Inc. v. Wilson, 677 F.2d 180, 182 (2d Cir.1981)). Public benefit need not be direct or tangible, but may arise because the challenged use serves a public interest. Id. In the case before us, Accolade's identification of the functional requirements for Genesis compatibility has led to an increase in the number of independently designed video game programs offered for use with the Genesis console. It is precisely this growth in creative expression, based on the dissemination of other creative works and the unprotected ideas contained in those works, that the Copyright Act was intended to promote. See Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, ----, 111 S.Ct. 1282, 1290, 113 L.Ed.2d 358 (1991) (citing Harper & Row, 471 U.S. at 556-57, 105 S.Ct. at 2228-29). The fact that Genesis- compatible video games are not scholarly works, but works offered for sale on the market, does not alter our judgment in this regard. We conclude that given the purpose and character of Accolade's use of Sega's video game programs, the presumption of unfairness has been overcome and the first statutory factor weighs in favor of Accolade.

(b)

[15] As applied, the fourth statutory factor, effect on the potential market for the copyrighted work, bears a close relationship to the "purpose and character" inquiry in that it, too, accommodates the distinction between the copying of works in order to make independent creative expression possible and the simple exploitation of another's creative efforts. We must, of course, inquire whether, "if [the challenged use] should become widespread, it would adversely affect the potential market for the copyrighted work," Sony Corp. v. Universal City Studios, 464 U.S. 417, 451, 104 S.Ct. 774, 793, 78 L.Ed.2d 574 (1984), by diminishing potential sales, interfering with marketability, or usurping the market, Hustler, 796 F.2d at 1155-56. If the copying resulted in the latter effect, all other considerations might be irrelevant. The Harper & Row Court found a use that effectively usurped the market for the copyrighted work by supplanting that work to be dispositive. 471 U.S. at 567-69, 105 S.Ct. at 2234-35. However, the same consequences do not and could not attach to a use which simply enables the copier to enter the market for works of the same type as the copied work.

Unlike the defendant in Harper & Row, which printed excerpts from President Ford's memoirs verbatim with the stated purpose of "scooping" a Time magazine review of the book, 471 U.S. at 562, 105 S.Ct. at 2231, Accolade did not attempt to "scoop" Sega's release of any particular game or games, but sought only to become a legitimate competitor in the field of Genesis-compatible video games. Within that market, it is the characteristics of the game program as experienced by the user that determine the program's commercial success. As we have noted, there is nothing in the record that suggests that Accolade copied any of those elements.

[16] By facilitating the entry of a new competitor, the first lawful one that is not a Sega licensee, Accolade's disassembly of Sega's software undoubtedly "affected" the market for Genesis-compatible games in an indirect fashion. We note, however, that while no consumer except the most avid devotee of President Ford's regime might be expected to buy more than one version of the President's memoirs, video game users typically purchase more than one game. There is no basis for assuming that Accolade's "Ishido" has significantly affected the market for Sega's "Altered Beast", since a consumer might easily purchase both; nor does it seem unlikely that a consumer particularly interested in sports might purchase both Accolade's "Mike Ditka Power Football" and Sega's "Joe Montana Football", particularly if the games are, as Accolade contends, not substantially similar. In any event, an attempt to monopolize *1524 the market by making it impossible for others to compete runs counter to the statutory purpose of promoting creative expression and cannot constitute a strong equitable basis for resisting the invocation of the fair use doctrine. Thus, we conclude that the fourth statutory factor weighs in Accolade's, not Sega's, favor, notwithstanding the minor economic loss Sega may suffer.

(c)

[17][18][19] The second statutory factor, the nature of the copyrighted work, reflects the fact that not all copyrighted works are entitled to the same level of protection. The protection established by the Copyright Act for original works of authorship does not extend to the ideas underlying a work or to the functional or factual aspects of the work. 17 U.S.C. § 102(b). To the extent that a work is functional or factual, it may be copied, Baker v. Selden, 101 U.S. (11 Otto) 99, 102-04, 25 L.Ed. 841 (1879), as may those expressive elements of the work that "must necessarily be used as incident to" expression of the underlying ideas, functional concepts, or facts, id. at 104. Works of fiction receive greater protection than works that have strong factual elements, such as historical or biographical works, Maxtone-Graham, 803 F.2d at 1263 (citing Rosemont Enterprises, Inc. v. Random House, Inc., 366 F.2d 303, 307 (2d Cir.1966), cert. denied, 385 U.S. 1009, 87 S.Ct. 714, 17 L.Ed.2d 546 (1967)), or works that have strong functional elements, such as accounting textbooks, Baker, 101 U.S. at 104. Works that are merely compilations of fact are copyrightable, but the copyright in such a work is "thin." Feist Publications, 499 U.S. at ----, 111 S.Ct. at 1289.

Computer programs pose unique problems for the application of the "idea/expression distinction" that determines the extent of copyright protection. To the extent that there are many possible ways of accomplishing a given task or fulfilling a particular market demand, the programmer's choice of program structure and design may be highly creative and idiosyncratic. However, computer programs are, in essence, utilitarian articles--articles that accomplish tasks. As such, they contain many logical, structural, and visual display elements that are dictated by the function to be performed, by considerations of efficiency, or by external factors such as compatibility requirements and industry demands. Computer Assoc. Int'l, Inc. v. Altai, Inc., 1992 WL 372273, 23 U.S.P.Q.2d (BNA) 1241, 1253-56 (2d Cir.1992) ("CAI"). In some circumstances, even the exact set of commands used by the programmer is deemed functional rather than creative for purposes of copyright. "[W]hen specific instructions, even though previously copyrighted, are the only and essential means of accomplishing a given task, their later use by another will not amount to infringement." CONTU Report at 20; see CAI, 23 U.S.P.Q.2d at 1254. [FN7]

FN7. We therefore reject Sega's belated suggestion that Accolade's incorporation of the code which "unlocks" the Genesis III console is not a fair use. Our decision on this point is entirely consistent with Atari v. Nintendo, 975 F.2d 832 (Fed.Cir.1992). Although Nintendo extended copyright protection to Nintendo's 10NES security system, that system consisted of an original program which generates an arbitrary data stream "key" which unlocks the NES console. Creativity and originality went into the design of that program. See id. at 840. Moreover, the federal circuit concluded that there is a "multitude of different ways to generate a data stream which unlocks the NES console." Atari, 975 F.2d at 839. The circumstances are clearly different here. Sega's key appears to be functional. It consists merely of 20 bytes of initialization code plus the letters S-E-G-A. There is no showing that there is a multitude of different ways to unlock the Genesis III console. Finally, we note that Sega's security code is of such de minimis length that it is probably unprotected under the words and short phrases doctrine. 37 C.F.R. § 202.1(a).

Because of the hybrid nature of computer programs, there is no settled standard for identifying what is protected expression and what is unprotected idea in a case involving the alleged infringement of a copyright in computer software. We are in wholehearted agreement with the Second Circuit's recent observation that "[t]hus far, many of the decisions in this area reflect the courts' attempt to fit the proverbial square peg in a round hole." CAI, 23 U.S.P.Q.2d at 1257. In 1986, the Third Circuit attempted to resolve the dilemma by suggesting that the idea or function of a *1525 computer program is the idea of the program as a whole, and "everything that is not necessary to that purpose or function [is] part of the expression of that idea." Whelan Assoc., Inc. v. Jaslow Dental Laboratory, Inc., 797 F.2d 1222, 1236 (3d Cir.1986) (emphasis omitted). The Whelan rule, however, has been widely-- and soundly--criticized as simplistic and overbroad. See CAI, 23 U.S.P.Q.2d at 1252 (citing cases, treatises, and articles). In reality, "a computer program's ultimate function or purpose is the composite result of interacting subroutines. Since each subroutine is itself a program, and thus, may be said to have its own 'idea,' Whelan's general formulation ... is descriptively inadequate." Id. For example, the computer program at issue in the case before us, a video game program, contains at least two such subroutines--the subroutine that allows the user to interact with the video game and the subroutine that allows the game cartridge to interact with the console. Under a test that breaks down a computer program into its component subroutines and sub-subroutines and then identifies the idea or core functional element of each, such as the test recently adopted by the Second Circuit in CAI, 23 U.S.P.Q.2d at 1252-53, many aspects of the program are not protected by copyright. In our view, in light of the essentially utilitarian nature of computer programs, the Second Circuit's approach is an appropriate one.

Sega argues that even if many elements of its video game programs are properly characterized as functional and therefore not protected by copyright, Accolade copied protected expression. Sega is correct. The record makes clear that disassembly is wholesale copying. Because computer programs are also unique among copyrighted works in the form in which they are distributed for public use, however, Sega's observation does not bring us much closer to a resolution of the dispute.

The unprotected aspects of most functional works are readily accessible to the human eye. The systems described in accounting textbooks or the basic structural concepts embodied in architectural plans, to give two examples, can be easily copied without also copying any of the protected, expressive aspects of the original works. Computer programs, however, are typically distributed for public use in object code form, embedded in a silicon chip or on a floppy disk. For that reason, humans often cannot gain access to the unprotected ideas and functional concepts contained in object code without disassembling that code--i.e., making copies. [FN8] Atari Games Corp. v. Nintendo of America, 975 F.2d at 843-44 (Fed.Cir.1992).

FN8. We do not intend to suggest that disassembly is always the only available means of access to those aspects of a computer program that are unprotected by copyright. As we noted in Part III(B), supra, in many cases the operation of a program is directly reflected on the screen display and therefore visible to the human eye. In those cases, it is likely that a reverse engineer would not need to examine the code in order to understand what the program does.

Sega argues that the record does not establish that disassembly of its object code is the only available method for gaining access to the interface specifications for the Genesis console, and the district court agreed. An independent examination of the record reveals that Sega misstates its contents, and demonstrates that the district court committed clear error in this respect.

First, the record clearly establishes that humans cannot read object code. Sega makes much of Mike Lorenzen's statement that a reverse engineer can work directly from the zeros and ones of object code but "[i]t's not as fun." In full, Lorenzen's statements establish only that the use of an electronic decompiler is not absolutely necessary. Trained programmers can disassemble object code by hand. Because even a trained programmer cannot possibly remember the millions of zeros and ones that make up a program, however, he must make a written or computerized copy of the disassembled code in order to keep track of his work. See generally Johnson-Laird, Technical Demonstration of "Decompilation", reprinted in Reverse Engineering: Legal and Business Strategies for Competitive Design in the 1990's 102 (Prentice Hall Law & Business ed. 1992). The relevant fact for purposes of Sega's copyright infringement claim and Accolade's fair use*1526 defense is that translation of a program from object code into source code cannot be accomplished without making copies of the code.

Second, the record provides no support for a conclusion that a viable alternative to disassembly exists. The district court found that Accolade could have avoided a copyright infringement claim by "peeling" the chips contained in Sega's games or in the Genesis console, as authorized by section 906 of the SCPA, 17 U.S.C. § 906. Even Sega's amici agree that this finding was clear error. The declaration of Dr. Harry Tredennick, an expert witness for Accolade, establishes that chip peeling yields only a physical diagram of the object code embedded in a ROM chip. It does not obviate the need to translate object code into source code. Atari Games Corp., 975 F.2d at 843-44.

The district court also suggested that Accolade could have avoided a copyright infringement suit by programming in a "clean room". That finding too is clearly erroneous. A "clean room" is a procedure used in the computer industry in order to prevent direct copying of a competitor's code during the development of a competing product. Programmers in clean rooms are provided only with the functional specifications for the desired program. As Dr. Tredennick explained, the use of a clean room would not have avoided the need for disassembly because disassembly was necessary in order to discover the functional specifications for a Genesis-compatible game.

[20] In summary, the record clearly establishes that disassembly of the object code in Sega's video game cartridges was necessary in order to understand the functional requirements for Genesis compatibility. The interface procedures for the Genesis console are distributed for public use only in object code form, and are not visible to the user during operation of the video game program. Because object code cannot be read by humans, it must be disassembled, either by hand or by machine. Disassembly of object code necessarily entails copying. Those facts dictate our analysis of the second statutory fair use factor. If disassembly of copyrighted object code is per se an unfair use, the owner of the copyright gains a de facto monopoly over the functional aspects of his work--aspects that were expressly denied copyright protection by Congress. 17 U.S.C. § 102(b). In order to enjoy a lawful monopoly over the idea or functional principle underlying a work, the creator of the work must satisfy the more stringent standards imposed by the patent laws. Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 159- 64, 109 S.Ct. 971, 982-84, 103 L.Ed.2d 118 (1989). Sega does not hold a patent on the Genesis console.

[21] Because Sega's video game programs contain unprotected aspects that cannot be examined without copying, we afford them a lower degree of protection than more traditional literary works. See CAI, 23 U.S.P.Q.2d at 1257. In light of all the considerations discussed above, we conclude that the second statutory factor also weighs in favor of Accolade. [FN9]

FN9. Sega argues that its programs are unpublished works and that therefore, under Harper & Row, the second statutory factor weighs in its favor. 471 U.S. at 553-55, 105 S.Ct. at 2226-28. Recently, however, this court affirmed a district court holding that computer game cartridges that are held out to the public for sale are published works for purposes of copyright. Lewis Galoob Toys, Inc. v. Nintendo of America, Inc., 964 F.2d 965, 971 (9th Cir.1992, as amended August 5, 1992) (affirming 780 F.Supp. 1283, 1293 (N.D.Cal.1991). The decision in Association of Am. Medical Colleges v. Cuomo, 928 F.2d 519 (2d Cir.1991), cert. denied, 502 U.S. 862, 112 S.Ct. 184, 116 L.Ed.2d 146 (1991), is not to the contrary. The Medical College Admission Test is not held out to the public for sale, but rather is distributed on a highly restricted basis.

(d)

As to the third statutory factor, Accolade disassembled entire programs written by Sega. Accordingly, the third factor weighs against Accolade. The fact that an entire work was copied does not, however, preclude a finding a fair use. Sony Corp., 464 U.S. at 449-50, 104 S.Ct. at 792; Hustler, 796 F.2d at 1155 ("Sony Corp. teaches us that the copying of an entire work does not preclude fair use per se."). In fact, where the ultimate (as opposed to direct) use is as*1527limited as it was here, the factor is of very little weight. Cf. Wright v. Warner Books, Inc., 953 F.2d 731, 738 (2d Cir.1991).

(e)

[22] In summary, careful analysis of the purpose and characteristics of Accolade's use of Sega's video game programs, the nature of the computer programs involved, and the nature of the market for video game cartridges yields the conclusion that the first, second, and fourth statutory fair use factors weigh in favor of Accolade, while only the third weighs in favor of Sega, and even then only slightly. Accordingly, Accolade clearly has by far the better case on the fair use issue.

We are not unaware of the fact that to those used to considering copyright issues in more traditional contexts, our result may seem incongruous at first blush. To oversimplify, the record establishes that Accolade, a commercial competitor of Sega, engaged in wholesale copying of Sega's copyrighted code as a preliminary step in the development of a competing product. However, the key to this case is that we are dealing with computer software, a relatively unexplored area in the world of copyright law. We must avoid the temptation of trying to force "the proverbial square peg in[to] a round hole." CAI, 23 U.S.P.Q.2d at 1257.

[23] In determining whether a challenged use of copyrighted material is fair, a court must keep in mind the public policy underlying the Copyright Act. " 'The immediate effect of our copyright law is to secure a fair return for an "author's" creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good.' " Sony Corp., 464 U.S. at 432, 104 S.Ct. at 783 (quoting Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156, 95 S.Ct. 2040, 2044, 45 L.Ed.2d 84 (1975)). When technological change has rendered an aspect or application of the Copyright Act ambiguous, " 'the Copyright Act must be construed in light of this basic purpose.' " Id. As discussed above, the fact that computer programs are distributed for public use in object code form often precludes public access to the ideas and functional concepts contained in those programs, and thus confers on the copyright owner a de facto monopoly over those ideas and functional concepts. That result defeats the fundamental purpose of the Copyright Act--to encourage the production of original works by protecting the expressive elements of those works while leaving the ideas, facts, and functional concepts in the public domain for others to build on. Feist Publications, 499 U.S. at ----, 111 S.Ct. at 1290; see also Atari Games Corp., 975 F.2d at 842 - 43.

[24] Sega argues that the considerable time, effort, and money that went into development of the Genesis and Genesis-compatible video games militate against a finding of fair use. Borrowing from antitrust principles, Sega attempts to label Accolade a "free rider" on its product development efforts. In Feist Publications, however, the Court unequivocally rejected the "sweat of the brow" rationale for copyright protection. 499 U.S. at ---- - ----, 111 S.Ct. at 1290-95. Under the Copyright Act, if a work is largely functional, it receives only weak protection. "This result is neither unfair nor unfortunate. It is the means by which copyright advances the progress of science and art." Id. 499 U.S. at ----, 111 S.Ct. at 1290; see also id. 499 U.S. at ----, 111 S.Ct. at 1292 ("In truth, '[i]t is just such wasted effort that the proscription against the copyright of ideas and facts ... [is] designed to prevent.' ") (quoting Rosemont Enterprises, Inc. v. Random House, Inc., 366 F.2d 303, 310 (2d Cir.1966), cert. denied 385 U.S. 1009, 87 S.Ct. 714, 17 L.Ed.2d 546 (1967)); CAI, 23 U.S.P.Q.2d at 1257. Here, while the work may not be largely functional, it incorporates functional elements which do not merit protection. The equitable considerations involved weigh on the side of public access. Accordingly, we reject Sega's argument.

(f)

We conclude that where disassembly is the only way to gain access to the ideas and functional elements embodied in a copyrighted computer program and where there is a legitimate reason for seeking such access, disassembly is a fair use of *1528 the copyrighted work, as a matter of law. Our conclusion does not, of course, insulate Accolade from a claim of copyright infringement with respect to its finished products. Sega has reserved the right to raise such a claim, and it may do so on remand.

IV. Trademark Issues

Ordinarily in a trademark case, a trademark holder contends that another party is misusing the holder's mark or is attempting to pass off goods or services as those of the trademark holder. The other party usually protests that the mark is not being misused, that there is no actual confusion, or that for some other reason no violation has occurred. This case is different. Here, both parties agree that there is a misuse of a trademark, both agree that there is unlawful mislabeling, and both agree that confusion may result. The issue, here, is-- which party is primarily responsible? Which is the wrongdoer--the violator? Is it Sega, which has adopted a security system governing access to its Genesis III console that displays its trademark and message whenever the initialization code for the security system is utilized, even when the video game program was manufactured by a Sega competitor? Or is it Accolade, which, having discovered how to gain access to the Genesis III through the initialization code, uses that code even though doing so triggers the display of Sega's trademark and message in a manner that leads observers to believe that Sega manufactured the Accolade game cartridge? In other words, is Sega the injured party because its mark is wrongfully attached to an Accolade video game by Accolade? Or is Accolade wronged because its game is mislabeled as a Sega product by Sega? The facts are relatively straightforward and we have little difficulty answering the question.

[25] Sega's trademark security system (TMSS) initialization code not only enables video game programs to operate on the Genesis III console, but also prompts a screen display of the SEGA trademark and message. As a result, Accolade's inclusion of the TMSS initialization code in its video game programs has an effect ultimately beneficial neither to Sega nor to Accolade. A Genesis III owner who purchases a video game made by Accolade sees Sega's trademark associated with Accolade's product each time he inserts the game cartridge into the console. Sega claims that Accolade's inclusion of the TMSS initialization code in its games constitutes trademark infringement and false designation of origin in violation of sections 32(1)(a) and 43(a) of the Lanham Trademark Act, 15 U.S.C. §§ 1114(1)(a), 1125(a), respectively. Accolade counterclaims that Sega's use of the TMSS to prompt a screen display of its trademark constitutes false designation of origin under Lanham Act section 43(a), 15 U.S.C. § 1125(a).

Because the TMSS has the effect of regulating access to the Genesis III console, and because there is no indication in the record of any public or industry awareness of any feasible alternate method of gaining access to the Genesis III, we hold that Sega is primarily responsible for any resultant confusion. Thus, it has not demonstrated a likelihood of success on the merits of its Lanham Act claims. Accordingly, the preliminary injunction it obtained must be dissolved with respect to the trademark claim also. However, we decline to instruct the district court to grant Accolade's request for preliminary injunctive relief at this time. The decision whether to grant such relief requires the making of factual and equitable determinations in light of the legal conclusions we express here. Such determinations are best left in the first instance to the district court.

A. False Labeling

Section 32(1)(a) of the Lanham Act creates a cause of action for trademark infringement against any person who, without the consent of the trademark owner, "use[s] in commerce any reproduction ... of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive...." 15 U.S.C. § 1114(1)(a). Section 43(a) proscribes the use in commerce *1529 of a false designation of origin in connection with goods or services where such use is "likely to cause confusion, or ... mistake." Id. § 1125(a). Both Sega and Accolade agree that the screen display of the Sega trademark and message creates a likelihood of consumer confusion regarding the origin of Accolade's games. The question is: which party is legally responsible for that confusion? We disagree with the answer given by the district court.

The district court found that Accolade bore primary responsibility for any consumer confusion that resulted from the display of the false Sega Message. However, Accolade had no desire to cause the Sega Message to appear or otherwise to create any appearance of association between itself and Sega; in fact, it had precisely the opposite wish. It used the TMSS initialization code only because it wanted to gain access for its products to the Genesis III, and was aware of no other method for doing so. On the other hand, while it may not have been Sega's ultimate goal to mislabel Accolade's products, the record is clear that the false labeling was the result of a deliberate decision on the part of Sega to include in the Genesis III a device which would both limit general access and cause false labeling. The decision to use the SEGA trademark as an essential element of a functional device that regulates access and to cause the SEGA trademark and message to be displayed whenever that functional device was triggered compels us to place primary responsibility for consumer confusion squarely on Sega.

With respect to Accolade, we emphasize that the record clearly establishes that it had only one objective in this matter: to make its video game programs compatible with the Genesis III console. That objective was a legitimate and a lawful one. There is no evidence whatsoever that Accolade wished Sega's trademark to be displayed when Accolade's games were played on Sega's consoles. To the contrary, Accolade included disclaimers on its packaging materials which stated that "Accolade, Inc. is not associated with Sega Enterprises, Ltd." When questioned regarding the Sega Message and its potential effect on consumers, Alan Miller testified that Accolade does not welcome the association between its product and Sega and would gladly avoid that association if there were a way to do so. Miller testified that Accolade's engineers had not been able to discover any way to modify their game cartridges so that the games would operate on the Genesis III without prompting the screen display of the Sega Message.

In contrast, Sega officials testified that Sega incorporated the TMSS into the Genesis console, known in Asia as the Mega-Drive, in order to lay the groundwork for the trademark prosecution of software pirates who sell counterfeit cartridges in Taiwan and South Korea, as well as in the United States. Sega then marketed the redesigned console worldwide. Sega intended that when Sega game programs manufactured by a counterfeiter were played on its consoles, the Sega Message would be displayed, thereby establishing the legal basis for a claim of trademark infringement. However, as Sega certainly knew, the TMSS also had the potential to affect legitimate competitors adversely. First, Sega should have foreseen that a competitor might discover how to utilize the TMSS, and that when it did and included the initialization code in its cartridges, its video game programs would also end up being falsely labeled. Sega should also have known that the TMSS might discourage some competitors from manufacturing independently developed games for use with the Genesis III console, because they would not want to become the victims of such a labeling practice. Thus, in addition to laying the groundwork for lawsuits against pirates, Sega knowingly risked two significant consequences: the false labeling of some competitors' products and the discouraging of other competitors from manufacturing Genesis-compatible games. Under the Lanham Act, the former conduct, at least, is clearly unlawful.

"[T]rademark policies are designed '(1) to protect consumers from being misled ...; (2) to prevent an impairment of the value of the enterprise which owns the trademark; and (3) to achieve these ends in a manner consistent with the objectives of free competition.' " Anti-Monopoly, Inc. v. General*1530Mills Fun Group, 611 F.2d 296, 300-01 (9th Cir.1979) (quoting HMH Publishing Co. v. Brincat, 504 F.2d 713, 716 (9th Cir.1974)). Sega violated the first and the third of these principles. "The trademark is misused if it serves to limit competition in the manufacture and sales of a product. That is the special province of the limited monopolies provided pursuant to the patent laws." Id. at 301 (citation omitted).

[26] Sega makes much of the fact that it did not adopt the TMSS in order to wage war on Accolade in particular, but rather as a defensive measure against software counterfeiters. It is regrettable that Sega is troubled by software pirates who manufacture counterfeit products in other areas of the world where adequate copyright remedies are not available. However, under the Lanham Act, which governs the use of trademarks and other designations of origin in this country, it is the effect of the message display that matters. Whatever Sega's intent with respect to the TMSS, the device serves to limit competition in the market for Genesis-compatible games and to mislabel the products of competitors. Moreover, by seeking injunctive relief based on the mislabeling it has itself induced, Sega seeks once again to take advantage of its trademark to exclude its competitors from the market. The use of a mark for such purpose is inconsistent with the Lanham Act.

B. Functionality

[27] Sega argues that even if the legal analysis we have enunciated is correct, the facts do not support its application to this case. Specifically, Sega contends that the TMSS does not prevent legitimate unlicensed competitors from developing and marketing Genesis III-compatible cartridges that do not trigger a display of the Sega trademark and message. In other words, Sega claims that Accolade could have "engineered around" the TMSS. Accolade strongly disagrees with Sega's factual assertions. It contends that the TMSS initialization sequence is a functional feature that must be included in a video game program by a manufacturer in order for the game to operate on the Genesis III. Sega's factual argument stands or falls on the Nagashima declaration and the accompanying modified game cartridges that Sega introduced at the hearing. Having carefully reviewed the declaration, we conclude that Sega has not met its burden of establishing nonfunctionality.

Based on the Nagashima declaration and on the modified cartridges, the district court concluded that the TMSS initialization sequence was not a necessary component of a Genesis-compatible game. [FN10] The court found that Accolade could have created a game cartridge that lacked the TMSS initialization code but would still operate on the Genesis III, or could have programmed its games in such a way that the false Sega Message would not be displayed on the screen. The court further found that either modification could have been accomplished at minimal additional expense to Accolade. Accordingly, the court ruled that Accolade could not assert a functionality defense.

FN10. Accolade challenges the admissibility of the Nagashima declaration and the modified cartridges on several grounds. First, it argues that the district court promised to hold an in camera hearing on the declaration, but never did so. However, the record reveals that the district judge ultimately promised to hold such a hearing only if she felt it was necessary.

Second, Accolade contends that because Nagashima never specified the nature of the modification that he had made to Accolade's cartridges, the district court erred in admitting the cartridges as evidence without ascertaining that the TMSS initialization sequence really had been omitted. In a preliminary injunction proceeding, the district court is accorded broad discretion in ruling on the admissibility of evidence. Flynt Distributing Co., Inc. v. Harvey, 734 F.2d 1389, 1394 (9th Cir.1984). In the absence of any evidence that Nagashima was lying, it was not an abuse of discretion for the district judge to admit his declaration and the altered Accolade cartridges as evidence. The fact that neither Accolade nor the district court was able to verify Nagashima's statements affects the weight to be given the statements and the proffered cartridges, not their admissibility.

[28][29] The question whether a product feature is functional is a question of fact. Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 855, 102 S.Ct. 2182, 2189, 72 L.Ed.2d 606 (1982). Determination of the correct legal standard to apply in evaluating functionality, however,*1531is a question of law which we review de novo. Id. at 855 n. 15, 102 S.Ct. at 2189 n. 15. The burden of proving nonfunctionality is on Sega. See Rachel v. Banana Republic, Inc., 831 F.2d 1503, 1506 (9th Cir.1987). In the case before us, we conclude that the district court's finding of nonfunctionality was based on its use of an incorrect legal standard. Viewed in the correct light, the record before us supports only one conclusion: The TMSS initialization code is a functional feature of a Genesis-compatible game and Accolade may not be barred from using it.

[30][31] "Functional features of a product are features 'which constitute the actual benefit that the consumer wishes to purchase, as distinguished from an assurance that a particular entity made, sponsored, or endorsed a product.' " Vuitton et Fils S.A. v. J. Young Enterprises, Inc., 644 F.2d 769, 774 (9th Cir.1981) (quoting International Order of Job's Daughters v. Lindeburg & Co., 633 F.2d 912, 917 (9th Cir.1980), cert. denied, 452 U.S. 941, 101 S.Ct. 3086, 69 L.Ed.2d 956 (1981)). A product feature thus is functional "if it is essential to the use or purpose of the article or if it affects the cost or quality of the article." Inwood Laboratories, 456 U.S. at 850 n. 10, 102 S.Ct. at 2187 n. 10. The Lanham Act does not protect essentially functional or utilitarian product features because such protection would constitute a grant of a perpetual monopoly over features that could not be patented. Keene Corp. v. Paraflex Industries, Inc., 653 F.2d 822, 824 (3d Cir.1981). Even when the allegedly functional product feature is a trademark, the trademark owner may not enjoy a monopoly over the functional use of the mark. Job's Daughters, 633 F.2d at 918-19.

In determining whether a product feature is functional, a court may consider a number of factors, including--but not limited to--"the availability of alternative designs; and whether a particular design results from a comparatively simple or cheap method of manufacture." Clamp Mfg. Co. v. Enco Mfg. Co., Inc., 870 F.2d 512, 516 (9th Cir.), cert. denied, 493 U.S. 872, 110 S.Ct. 202, 107 L.Ed.2d 155 (1989). The availability of alternative methods of manufacture must be more than merely theoretical or speculative, however. The court must find "that commercially feasible alternative configurations exist. " Id. (emphasis added). Moreover, some cases have even suggested that in order to establish nonfunctionality the party with the burden must demonstrate that the product feature " 'serves no purpose other than identification.' " Keene Corp., 653 F.2d at 826 (quoting SK & F Co. v. Premo Pharmaceutical Laboratories, Inc., 625 F.2d 1055, 1063 (3d Cir.1980)). With these principles in mind, we turn to the question whether the TMSS initialization code is a functional feature of a Genesis-compatible game.

It is indisputable that, in the case before us, part of "the actual benefit that the consumer wishes to purchase" is compatibility with the Genesis III console. The TMSS initialization code provides that compatibility. Sega argues that the modified cartridges that were introduced in the district court establish the actual existence of technically and commercially feasible alternative methods of gaining access to the Genesis III. The cartridges were prepared by Nagashima, an employee in Sega's Hardware Research and Development Department who was "familiar with the TMSS system". At most, the Nagashima affidavit establishes that an individual familiar with the operation of the TMSS can discover a way to engineer around it. It does not establish that a competitor with no knowledge of the workings of the TMSS could do so. Nor is there any evidence that there was any public or industry awareness of any alternate method for gaining access to the Genesis III. Evidence that an individual, even an independent expert, produced one or more cartridges is not sufficient proof that an alternate method exists. What is needed for proof of that fact is proof of the method itself. Here, such proof is totally lacking. What is also needed is proof that knowledge of the alternate method exists or is readily available to knowledgeable persons in the industry. That proof also is totally lacking here. Accordingly, the district court erred as a matter of law in concluding that the Nagashima declaration and the modified cartridges were sufficient to establish nonfunctionality.

*1532 Because the TMSS serves the function of regulating access to the Genesis III, and because a means of access to the Genesis III console without using the TMSS initialization code is not known to manufacturers of competing video game cartridges, there is an insufficient basis for a finding of nonfunctionality. Moreover, we note that the only evidence in the record (other than the Nagashima declaration) relating to Accolade's ability to gain access to the Genesis III through the use of any process other than the TMSS is the affidavit of Alan Miller. Miller stated that Accolade's software engineers--who, absent any evidence to the contrary, we presume to be reasonably competent representatives of their profession--have not been able to discover such a method. This evidence supports our conclusion that Sega has not met its burden of establishing nonfunctionality.

[32] Sega argues that it is not required to share with Accolade or with any other competitor the secrets of how the TMSS works, and how to engineer around it. Sega is correct--the law does not require that it disclose its trade secrets to Accolade in connection with its effort to prevail on its Lanham Act claim, nor in connection with its effort to defend itself against Accolade's counterclaim. Nevertheless, a Lanham Act plaintiff is not entitled to prevail in litigation solely on the basis of unsupported assertions. Rather, it has a choice. It can take its chances and proceed to trial without the sensitive evidence. Alternatively, if it believes the evidence important to the resolution of the dispute, it may seek a protective order from the court pursuant to Federal Rule of Civil Procedure 26(c)(7) governing discovery. "The protective order is not a substitute for [evidence relevant to the merits]. Its purpose ... is to prevent harm by limiting disclosure of relevant and necessary information." Micro Motion, Inc. v. Kane Steel Co., Inc., 894 F.2d 1318, 1325 (Fed.Cir.1990) (emphasis omitted). Upon a showing that a protective order is warranted, see American Standard, Inc. v. Pfizer Inc., 828 F.2d 734, 739-44 (Fed.Cir.1987), the court may restrict access to the disputed material to the opposing party's counsel, or may allow the parties to retain independent experts to evaluate material that is subject to the protective order. See, e.g., Safe Flight Instrument Corp. v. Sundstrand Data Control, Inc., 682 F.Supp. 20, 22 (D.Del.1988) (listing cases). The latter solution is particularly helpful to the court in a case such as this one, in which the dispute is highly technical in nature. However, neither the district court nor Sega took advantage of this procedure. Thus there is no independent evidence to support the conclusion offered by Nagashima.

In summary, because Sega did not produce sufficient evidence regarding the existence of a feasible alternative to the use of the TMSS initialization code, it did not carry its burden and its claim of nonfunctionality fails. Possibly, Sega will be able to meet its burden of proof at trial. We cannot say. However, we conclude that in light of the record before the district court, Sega was not entitled to preliminary injunctive relief under the Lanham Act. [FN11]

FN11. Sega contends that even if the TMSS code is functional, Accolade, as the copier, was obligated to take the most effective measures reasonably available to eliminate the consumer confusion that has arisen as a result of the association of Sega's trademark with Accolade's product. The district court relied on Plasticolor Molded Products v. Ford Motor Co., 713 F.Supp. 1329, 1339 (C.D.Cal.1989), a decision it acknowledged had been vacated. See Plasticolor Molded Products v. Ford Motor Co., 767 F.Supp. 1036 (C.D.Cal.1991). When a product feature is both functional and source- identifying, the copier need only take reasonable measures to avoid consumer confusion. American Greetings Corp. v. Dan-Dee Imports, Inc., 807 F.2d 1136, 1141 (3d Cir.1986); Job's Daughters, 633 F.2d at 919 (the degree of protection afforded a product feature that has both functional and source-identifying aspects depends on the characteristics of the use and on the copier's merchandising practices). Assuming arguendo that the rules applicable to copiers apply here, the measures adopted by Accolade satisfy a reasonableness standard. Accolade placed disclaimers on its packaging materials which stated that "Accolade, Inc. is not associated with Sega Enterprises, Ltd." While Accolade could have worded its disclaimer more strongly, the version that it chose would appear to be sufficient.

C. Accolade's Request for Preliminary Injunctive Relief

Finally, we decline to order the district court to grant Accolade preliminary injunctive relief on its Lanham Act claim. If requested, the district court may reconsider that issue in light of the legal principles we *1533have set forth. The parties have presented arguments regarding the hardships they would suffer under various circumstances. We believe those arguments should be weighed by the district court before any affirmative relief is ordered. Moreover, the parties may have additional factual material they wish to present regarding the question of Accolade's right to preliminary injunctive relief. Pending further consideration of this matter by the district court, we are content to let the matter rest where it stands, with each party as free to act as it was before the issuance of preliminary injunctive relief. We are confident that preserving the status quo in this manner will not lead to any serious inequity. Costs on appeal shall be assessed against Sega.

AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.

 Direct & Contributory Infringement ­ OSP Liability

 907 F.Supp. 1361

64 USLW 2370, 1995 Copr.L.Dec. P 27,500, 37 U.S.P.Q.2d 1545, 24 Media L. Rep. 1097

(Cite as: 907 F.Supp. 1361)

RELIGIOUS TECHNOLOGY CENTER, a California non-profit corporation; and Bridge

Publications, Inc., a California non-profit corporation, Plaintiffs,

v.

NETCOM ON-LINE COMMUNICATION SERVICES, INC., a Delaware corporation; Dennis

Erlich, an individual; and Tom Klemesrud, an individual, dba Clearwood Data

Services, Defendants.

No. C-95-20091 RMW.

United States District Court,

N.D. California.

Nov. 21, 1995.

DENYING

PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION AGAINST NETCOM AND KLEMESRUD

WHYTE, District Judge.

This case concerns an issue of first impression regarding intellectual property rights in cyberspace. [FN1] Specifically, this order addresses whether the operator of a computer bulletin board service ("BBS"), and the large Internet [FN2] access provider that allows that BBS to reach the Internet, should be liable for copyright infringement committed by a subscriber of the BBS.

FN1. Cyberspace is a popular term for the world of electronic communications over computer networks. See Trotter Hardy, The Proper Legal Regime for "Cyberspace," 55 U.PITT.L.REV. 993, 994 (1994).

FN2. "The Internet today is a worldwide entity whose nature cannot be easily or simply defined. From a technical definition, the Internet is the 'set of all interconnected IP networks'--the collection of several thousand local, regional, and global computer networks interconnected in real time via the TCP/IP Internetworking Protocol suite...." Daniel P. Dern, THE INTERNET GUIDE FOR NEW USERS 16 (1994).

One article described the Internet as

a collection of thousands of local, regional, and global Internet Protocol networks. What it means in practical terms is that millions of computers in schools, universities, corporations, and other organizations are tied together via telephone lines. The Internet enables users to share files, search for information, send electronic mail, and log onto remote computers. But it isn't a program or even a particular computer resource. It remains only a means to link computer users together.

Unlike on-line computer services such as CompuServe and America On Line, no one runs the Internet....

No one pays for the Internet because the network itself doesn't exist as a separate entity. Instead various universities and organizations pay for the dedicated lines linking their computers. Individual users may pay an Internet provider for access to the Internet via its server.

David Bruning, Along the InfoBahn, ASTRONOMY, Vol. 23, No. 6, p. 76 (June 1995).

Plaintiffs Religious Technology Center ("RTC") and Bridge Publications, Inc. ("BPI") hold copyrights in the unpublished and published works of L. Ron Hubbard, the late founder of the Church of Scientology ("the Church"). Defendant Dennis Erlich ("Erlich") [FN3] is a former minister of Scientology turned vocal critic of the Church, whose pulpit is now the Usenet newsgroup [FN4] alt.religion.scientology ("a.r.s."), an on-line forum for discussion and criticism of Scientology. Plaintiffs maintain that Erlich infringed their copyrights when he posted portions of their *1366 works on a.r.s. Erlich gained his access to the Internet through defendant Thomas Klemesrud's ("Klemesrud's") BBS "support.com." Klemesrud is the operator of the BBS, which is run out of his home and has approximately 500 paying users. Klemesrud's BBS is not directly linked to the Internet, but gains its connection through the facilities of defendant Netcom On-Line Communications, Inc. ("Netcom"), one of the largest providers of Internet access in the United States.

FN3. Issues of Erlich's liability were addressed in this court's order of September 22, 1995. That order concludes in part that a preliminary injunction against Erlich is warranted because plaintiffs have shown a likelihood of success on their copyright infringement claims against him. Plaintiffs likely own valid copyrights in Hubbard's published and unpublished works and Erlich's near-verbatim copying of substantial portions of plaintiffs' works was not likely a fair use. To the extent that Netcom and Klemesrud argue that plaintiffs' copyrights are invalid and that Netcom and Klemesrud are not liable because Erlich had a valid fair use defense, the court previously rejected these arguments and will not reconsider them here.

FN4. The Usenet has been described as a worldwide community of electronic BBSs that is closely associated with the Internet and with the Internet community. ¶ The messages in Usenet are organized into thousands of topical groups, or "Newsgroups".... ¶ As a Usenet user, you read and contribute ("post") to your local Usenet site. Each Usenet site distributes its users' postings to other Usenet sites based on various implicit and explicit configuration settings, and in turn receives postings from other sites. Usenet traffic typically consists of as much as 30 to 50 Mbytes of messages per day. ¶ Usenet is read and contributed to on a daily basis by a total population of millions of people.... ¶ There is no specific network that is the Usenet. Usenet traffic flows over a wide range of networks, including the Internet and dial-up phone links.

Dern, supra, at 196-97.

After failing to convince Erlich to stop his postings, plaintiffs contacted defendants Klemesrud and Netcom. Klemesrud responded to plaintiffs' demands that Erlich be kept off his system by asking plaintiffs to prove that they owned the copyrights to the works posted by Erlich. However, plaintiffs refused Klemesrud's request as unreasonable. Netcom similarly refused plaintiffs' request that Erlich not be allowed to gain access to the Internet through its system. Netcom contended that it would be impossible to prescreen Erlich's postings and that to kick Erlich off the Internet meant kicking off the hundreds of users of Klemesrud's BBS. Consequently, plaintiffs named Klemesrud and Netcom in their suit against Erlich, although only on the copyright infringement claims. [FN5]

FN5. The First Amended Complaint ("FAC") contains three claims: (1) copyright infringement of BPI's published literary works against all defendants; (2) copyright infringement of RTC's unpublished confidential works against all defendants; and (3) misappropriation of RTC's trade secrets against defendant Erlich only.

On June 23, 1995, this court heard the parties' arguments on eight motions, three of which relate to Netcom and Klemesrud and are discussed in this order: (1) Netcom's motion for summary judgment; (2) Klemesrud's motion for judgment on the pleadings; [FN6] and (3) plaintiffs' motion for a preliminary injunction against Netcom and Klemesrud. For the reasons set forth below, the court grants in part and denies in part Netcom's motion for summary judgment and Klemesrud's motion for judgment on the pleadings and denies plaintiffs' motion for a preliminary injunction.

***

B. Copyright Infringement

[1] To establish a claim of copyright infringement, a plaintiff must demonstrate (1) ownership of a valid copyright and (2) "copying" [*1367FN7] of protectable expression by the defendant. Baxter v. MCA, Inc., 812 F.2d 421, 423 (9th Cir.), cert. denied, 484 U.S. 954, 108 S.Ct. 346, 98 L.Ed.2d 372 (1987). Infringement occurs when a defendant violates one of the exclusive rights of the copyright holder. 17 U.S.C. § 501(a). These rights include the right to reproduce the copyrighted work, the right to prepare derivative works, the right to distribute copies to the public, and the right to publicly display the work. 17 U.S.C. §§ 106(1)-(3) & (5). The court has already determined that plaintiffs have established that they own the copyrights to all of the Exhibit A and B works, except item 4 of Exhibit A. [FN8] The court also found plaintiffs likely to succeed on their claim that defendant Erlich copied the Exhibit A and B works and was not entitled to a fair use defense. Plaintiffs argue that, although Netcom was not itself the source of any of the infringing materials on its system, it nonetheless should be liable for infringement, either directly, contributorily, or vicariously. [FN9] Netcom disputes these theories of infringement and further argues that it is entitled to its own fair use defense.

FN7. In this context, "copying" is "shorthand for the infringing of any of the copyright owner's five exclusive rights." S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1085 n. 3 (9th Cir.1989).

FN8. The court has under submission plaintiffs' request to expand the preliminary injunction against Erlich.

FN9. Plaintiffs have argued at times during this litigation that Netcom should only be required to respond after being given notice, which is only relevant to contributory infringement. Nevertheless, the court will address all three theories of infringement liability.

1. Direct Infringement

Infringement consists of the unauthorized exercise of one of the exclusive rights of the copyright holder delineated in section 106. 17 U.S.C. § 501. Direct infringement does not require intent or any particular state of mind, [FN10] although willfulness is relevant to the award of statutory damages. 17 U.S.C. § 504(c).

FN10. The strict liability for copyright infringement is in contrast to another area of liability affecting online service providers: defamation. Recent decisions have held that where a BBS exercised little control over the content of the material on its service, it was more like a "distributor" than a "republisher" and was thus only liable for defamation on its system where it knew or should have known of the defamatory statements. Cubby, Inc. v. CompuServe, Inc., 776 F.Supp. 135 (S.D.N.Y.1991). By contrast, a New York state court judge found that Prodigy was a publisher because it held itself out to be controlling the content of its services and because it used software to automatically prescreen messages that were offensive or in bad taste. Stratton Oakmont, Inc. v. Prodigy Services Co., 1995 WL 323710, THE RECORDER, June 1, 1995, at 7 (excerpting May 24, 1995 Order Granting Partial Summary Judgment to Plaintiffs).

Many of the facts pertaining to this motion are undisputed. The court will address the relevant facts to determine whether a theory of direct infringement can be supported based on Netcom's alleged reproduction of plaintiffs' works. The court will look at one controlling Ninth Circuit decision addressing copying in the context of computers and two district court opinions addressing the liability of BBS operators for the infringing activities of subscribers. The court will additionally examine whether Netcom is liable for infringing plaintiffs' exclusive rights to publicly distribute and display their works.

a. Undisputed Facts

The parties do not dispute the basic processes that occur when Erlich posts his allegedly infringing messages to a.r.s. Erlich connects to Klemesrud's BBS using a telephone and a modem. Erlich then transmits his messages to Klemesrud's computer, where they are automatically briefly stored. According to a prearranged pattern established by Netcom's software, Erlich's initial act of posting a message to the Usenet results in the automatic copying of Erlich's message from Klemesrud's computer onto Netcom's computer and onto other computers on the Usenet. In order to ease transmission and for the convenience of Usenet users, Usenet servers maintain postings from newsgroups for a short period of time--eleven days for Netcom's system and three days for Klemesrud's system. Once on Netcom's computers, messages are available to Netcom's customers and Usenet neighbors, who may then download the messages to their *1368 own computers. Netcom's local server makes available its postings to a group of Usenet servers, which do the same for other servers until all Usenet sites worldwide have obtained access to the postings, which takes a matter of hours. Francis Decl. ¶ 5.

Unlike some other large on-line service providers, such as CompuServe, America Online, and Prodigy, Netcom does not create or control the content of the information available to its subscribers. It also does not monitor messages as they are posted. It has, however, suspended the accounts of subscribers who violated its terms and conditions, such as where they had commercial software in their posted files. Netcom admits that, although not currently configured to do this, it may be possible to reprogram its system to screen postings containing particular words or coming from particular individuals. Netcom, however, took no action after it was told by plaintiffs that Erlich had posted messages through Netcom's system that violated plaintiffs' copyrights, instead claiming that it could not shut out Erlich without shutting out all of the users of Klemesrud's BBS.

b. Creation of Fixed Copies

The Ninth Circuit addressed the question of what constitutes infringement in the context of storage of digital information in a computer's random access memory ("RAM"). MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 518 (9th Cir.1993). In MAI, the Ninth Circuit upheld a finding of copyright infringement where a repair person, who was not authorized to use the computer owner's licensed operating system software, turned on the computer, thus loading the operating system into RAM for long enough to check an "error log." Id. at 518-19. Copyright protection subsists in original works of authorship "fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device." 17 U.S.C. § 102 (emphasis added). A work is "fixed" when its "embodiment in a copy ... is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration." Id. § 101. MAI established that the loading of data from a storage device into RAM constitutes copying because that data stays in RAM long enough for it to be perceived. MAI Systems, 991 F.2d at 518.

[2] In the present case, there is no question after MAI that "copies" were created, as Erlich's act of sending a message to a.r.s. caused reproductions of portions of plaintiffs' works on both Klemesrud's and Netcom's storage devices. Even though the messages remained on their systems for at most eleven days, they were sufficiently "fixed" to constitute recognizable copies under the Copyright Act. See Information Infrastructure Task Force, Intellectual Property and the National Information Infrastructure: The Report of the Working Group on Intellectual Property Rights 66 (1995) ("IITF Report").

c. Is Netcom Directly Liable for Making the Copies?

[3] Accepting that copies were made, Netcom argues that Erlich, and not Netcom, is directly liable for the copying. MAI did not address the question raised in this case: whether possessors of computers are liable for incidental copies automatically made on their computers using their software as part of a process initiated by a third party. Netcom correctly distinguishes MAI on the ground that Netcom did not take any affirmative action that directly resulted in copying plaintiffs' works other than by installing and maintaining a system whereby software automatically forwards messages received from subscribers onto the Usenet, and temporarily stores copies on its system. Netcom's actions, to the extent that they created a copy of plaintiffs' works, were necessary to having a working system for transmitting Usenet postings to and from the Internet. Unlike the defendants in MAI, neither Netcom nor Klemesrud initiated the copying. The defendants in MAI turned on their customers' computers thereby creating temporary copies of the operating system, whereas Netcom's and Klemesrud's systems can operate without any human intervention. Thus, unlike MAI, the mere fact that Netcom's system incidentally makes temporary copies *1369of plaintiffs' works does not mean Netcom has caused the copying. [FN11] The court believes that Netcom's act of designing or implementing a system that automatically and uniformly creates temporary copies of all data sent through it is not unlike that of the owner of a copying machine who lets the public make copies with it. [FN12] Although some of the people using the machine may directly infringe copyrights, courts analyze the machine owner's liability under the rubric of contributory infringement, not direct infringement. See, e.g., RCA Records v. All-Fast Systems, Inc., 594 F.Supp. 335 (S.D.N.Y.1984); 3 Melville B. Nimmer & David Nimmer, NIMMER ON COPYRIGHT § 12.04[A][2][b], at 12-78 to -79 (1995) ("NIMMER ON COPYRIGHT"); Elkin-Koren, supra, at 363 (arguing that "contributory infringement is more appropriate for dealing with BBS liability, first, because it focuses attention on the BBS-users relationship and the way imposing liability on BBS operators may shape this relationship, and second because it better addresses the complexity of the relationship between BBS operators and subscribers"). Plaintiffs' theory would create many separate acts of infringement and, carried to its natural extreme, would lead to unreasonable liability. It is not difficult to conclude that Erlich infringes by copying a protected work onto his computer and by posting a message to a newsgroup. However, plaintiffs' theory further implicates a Usenet server that carries Erlich's message to other servers regardless of whether that server acts without any human intervention beyond the initial setting up of the system. It would also result in liability for every single Usenet server in the worldwide link of computers transmitting Erlich's message to every other computer. These parties, who are liable under plaintiffs' theory, do no more *1370than operate or implement a system that is essential if Usenet messages are to be widely distributed. There is no need to construe the Act to make all of these parties infringers. Although copyright is a strict liability statute, there should still be some element of volition or causation which is lacking where a defendant's system is merely used to create a copy by a third party.

FN11. One commentator addressed the difficulty in translating copyright concepts, including the public/private dichotomy, to the digitized environment. See Niva Elkin-Koren, Copyright Law and Social Dialogue on the Information Superhighway: The Case Against Copyright Liability of Bulletin Board Operators, 13 CARDOZO ARTS & ENT.L.J. 345, 390 (1995). This commentator noted that one way to characterize a BBS operation is that it "provides subscribers with access and services. As such, BBS operators do not create copies, and do not transfer them in any way. Users post the copies on the BBS, which other users can then read or download." Id. at 356.

FN12. Netcom compares itself to a common carrier that merely acts as a passive conduit for information. In a sense, a Usenet server that forwards all messages acts like a common carrier, passively retransmitting every message that gets sent through it. Netcom would seem no more liable than the phone company for carrying an infringing facsimile transmission or storing an infringing audio recording on its voice mail. As Netcom's counsel argued, holding such a server liable would be like holding the owner of the highway, or at least the operator of a toll booth, liable for the criminal activities that occur on its roads. Since other similar carriers of information are not liable for infringement, there is some basis for exempting Internet access providers from liability for infringement by their users. The IITF Report concluded that "[i]f an entity provided only the wires and conduits--such as the telephone company, it would have a good argument for an exemption if it was truly in the same position as a common carrier and could not control who or what was on its system." IITF Report at 122. Here, perhaps, the analogy is not completely appropriate as Netcom does more than just "provide the wire and conduits." Further, Internet providers are not natural monopolies that are bound to carry all the traffic that one wishes to pass through them, as with the usual common carrier. See id. at 122 n. 392 (citing Federal Communications Commission v. Midwest Video Corp., 440 U.S. 689, 701, 99 S.Ct. 1435, 1442, 59 L.Ed.2d 692 (1979)). Section 111 of the Copyright Act codifies the exemption for passive carriers who are otherwise liable for a secondary transmission. 3 Melville B. Nimmer & David Nimmer, NIMMER ON COPYRIGHT § 12.04[B][3], at 12-99 (1995). However, the carrier must not have any direct or indirect control over the content or selection of the primary transmission. Id.; 17 U.S.C. § 111(a)(3). Cf. infra part I.B.3.a. In any event, common carriers are granted statutory exemptions for liability that might otherwise exist. Here, Netcom does not fall under this statutory exemption, and thus faces the usual strict liability scheme that exists for copyright. Whether a new exemption should be carved out for online service providers is to be resolved by Congress, not the courts. Compare Comment, "Online Service Providers and Copyright Law: The Need for Change," 1 SYRACUSE J.LEGIS. & POL'Y 197, 202 (1995) (citing recommendations of online service providers for amending the Copyright Act to create liability only where a "provider has 'actual knowledge that a work that is being or has been transmitted onto, or stored on, its system is infringing,' and has the 'ability and authority' to stop the transmission, and has, after a reasonable amount of time, allowed the infringing activity to continue' ") with IITF Report at 122 (recommending that Congress not exempt service providers from strict liability for direct infringements).

Plaintiffs point out that the infringing copies resided for eleven days on Netcom's computer and were sent out from it onto the "Information Superhighway." However, under plaintiffs' theory, any storage of a copy that occurs in the process of sending a message to the Usenet is an infringement. While it is possible that less "damage" would have been done if Netcom had heeded plaintiffs' warnings and acted to prevent Erlich's message from being forwarded, [FN13] this is not relevant to its direct liability for copying. The same argument is true of Klemesrud and any Usenet server. Whether a defendant makes a direct copy that constitutes infringement cannot depend on whether it received a warning to delete the message. See D.C. Comics, Inc. v. Mini Gift, 912 F.2d 29, 35 (2d Cir.1990). This distinction may be relevant to contributory infringement, however, where knowledge is an element. See infra part I.B.2.a.

FN13. The court notes, however, that stopping the distribution of information once it is on the Internet is not easy. The decentralized network was designed so that if one link in the chain be closed off, the information will be dynamically rerouted through another link. This was meant to allow the system to be used for communication after a catastrophic event that shuts down part of it. Francis Decl. ¶ 4.

The court will now consider two district court opinions that have addressed the liability of BBS operators for infringing files uploaded by subscribers.

d. Playboy Case

Playboy Enterprises, Inc. v. Frena involved a suit against the operator of a small BBS whose system contained files of erotic pictures. 839 F.Supp. 1552, 1554 (M.D.Fla.1993). A subscriber of the defendant's BBS had uploaded files containing digitized pictures copied from the plaintiff's copyrighted magazine, which files remained on the BBS for other subscribers to download. Id. The court did not conclude, as plaintiffs suggest in this case, that the BBS is itself liable for the unauthorized reproduction of plaintiffs' work; instead, the court concluded that the BBS operator was liable for violating the plaintiff's right to publicly distribute and display copies of its work. Id. at 1556-57.

[4] In support of their argument that Netcom is directly liable for copying plaintiffs' works, plaintiffs cite to the court's conclusion that "[t]here is no dispute that [the BBS operator] supplied a product containing unauthorized copies of a copyrighted work. It does not matter that [the BBS operator] claims he did not make the copies [him]self." Id. at 1556. It is clear from the context of this discussion [FN14] that the Playboy court was looking only at the exclusive right to distribute copies to the public, where liability exists regardless of whether the defendant makes copies. Here, however, plaintiffs do not argue that Netcom is liable for its public distribution of copies. Instead, they claim that Netcom is liable because its computers in fact made copies. Therefore, the above-quoted language has no bearing on the issue of direct liability for unauthorized reproductions. Notwithstanding Playboy's holding that a BBS operator may be directly liable for distributing or displaying to the public copies of protected works, [FN15] this court holds*1371that the storage on a defendant's system of infringing copies and retransmission to other servers is not a direct infringement by the BBS operator of the exclusive right to reproduce the work where such copies are uploaded by an infringing user. Playboy does not hold otherwise. [FN16]

FN14. The paragraph in Playboy containing the quotation begins with a description of the right of public distribution. Id. Further, the above quoted language is followed by a citation to a discussion of the right of public distribution in Jay Dratler, Jr., INTELLECTUAL PROPERTY LAW: COMMERCIAL, CREATIVE AND INDUSTRIAL PROPERTY § 6.01[3], at 6-15 (1991). This treatise states that "the distribution right may be decisive, if, for example, a distributor supplies products containing unauthorized copies of a copyrighted work but has not made the copies itself." Id. (citing to Williams Electronics, Inc. v. Artic International, Inc., 685 F.2d 870, 876 (3d Cir.1982)). In any event, the Williams holding regarding public distribution was dicta, as the court found that the defendant had also made copies. Id.

FN15. Given the ambiguity in plaintiffs' reference to a violation of the right to "publish" and to Playboy, it is possible that plaintiffs are also claiming that Netcom infringed their exclusive right to publicly distribute their works. The court will address this argument infra.

FN16. The court further notes that Playboy has been much criticized. See, e.g., L. Rose, NETLAW 91-92 (1995). The finding of direct infringement was perhaps influenced by the fact that there was some evidence that defendants in fact knew of the infringing nature of the works, which were digitized photographs labeled "Playboy" and "Playmate."

e. Sega Case

A court in this district addressed the issue of whether a BBS operator is liable for copyright infringement where it solicited subscribers to upload files containing copyrighted materials to the BBS that were available for others to download. Sega Enterprises Ltd. v. MAPHIA, 857 F.Supp. 679, 683 (N.D.Cal.1994). The defendant's "MAPHIA" BBS contained copies of plaintiff Sega's video game programs that were uploaded by users. Id. at 683. The defendant solicited the uploading of such programs and received consideration for the right to download files. Id. Access was given for a fee or to those purchasing the defendant's hardware device that allowed Sega video game cartridges to be copied. Id. at 683-84. The court granted a preliminary injunction against the defendant, finding that plaintiffs had shown a prima facie case of direct and contributory infringement. Id. at 687. The court found that copies were made by unknown users of the BBS when files were uploaded and downloaded. Id. Further, the court found that the defendant's knowledge of the infringing activities, encouragement, direction and provision of the facilities through his operation of the BBS constituted contributory infringement, even though the defendant did not know exactly when files were uploaded or downloaded. Id. at 686-87.

This court is not convinced that Sega provides support for a finding of direct infringement where copies are made on a defendant's BBS by users who upload files. Although there is some language in Sega regarding direct infringement, it is entirely conclusory:

Sega has established a prima facie case of direct copyright infringement under 17 U.S.C. § 501. Sega has established that unauthorized copies of its games are made when such games are uploaded to the MAPHIA bulletin board, here with the knowledge of Defendant Scherman. These games are thereby placed on the storage media of the electronic bulletin board by unknown users.

Id. at 686 (emphasis added). The court's reference to the "knowledge of Defendant" indicates that the court was focusing on contributory infringement, as knowledge is not an element of direct infringement. Perhaps, Sega's references to direct infringement and that "copies ... are made" are to the direct liability of the "unknown users," as there can be no contributory infringement by a defendant without direct infringement by another. See 3 NIMMER ON COPYRIGHT § 12.04[A][3][a], at 12-89. Thus, the court finds that neither Playboy nor Sega requires finding Netcom liable for direct infringement of plaintiffs' exclusive right to reproduce their works. [FN17]

FN17. To the extent that Sega holds that BBS operators are directly liable for copyright infringement when users upload infringing works to their systems, this court respectfully disagrees with the court's holding for the reasons discussed above. Further, such a holding was dicta, as there was evidence that the defendant knew of the infringing uploads by users and, in fact, actively encouraged such activity, thus supporting the contributory infringement theory. Id. at 683.

f. Public Distribution and Display?

[5] Plaintiffs allege that Netcom is directly liable for making copies of their works. See FAC ¶ 25. They also allege that Netcom violated their exclusive rights to publicly display copies of their works. FAC ¶¶ 44, 51. There are no allegations that Netcom violated plaintiffs' exclusive right to publicly distribute their works. However, in their discussion of direct infringement, plaintiffs insist that Netcom is liable for "maintain[ing] copies of [Erlich's] messages on its server for eleven days for access by its subscribers and 'USENET neighbors' " and they compare this case to the Playboy case, which discussed *1372the right of public distribution. Opp'n at 7. Plaintiffs also argued this theory of infringement at oral argument. Tr. [FN18] 5:22. Because this could be an attempt to argue that Netcom has infringed plaintiffs' rights of public distribution and display, the court will address these arguments.

FN18. References to "Tr." are to the reporter's transcript of the June 23, 1995 hearing on these motions.

Playboy concluded that the defendant infringed the plaintiff's exclusive rights to publicly distribute and display copies of its works. 839 F.Supp. at 1556-57. The court is not entirely convinced that the mere possession of a digital copy on a BBS that is accessible to some members of the public constitutes direct infringement by the BBS operator. Such a holding suffers from the same problem of causation as the reproduction argument. Only the subscriber should be liable for causing the distribution of plaintiffs' work, as the contributing actions of the BBS provider are automatic and indiscriminate. Erlich could have posted his messages through countless access providers and the outcome would be the same: anyone with access to Usenet newsgroups would be able to read his messages. There is no logical reason to draw a line around Netcom and Klemesrud and say that they are uniquely responsible for distributing Erlich's messages. Netcom is not even the first link in the chain of distribution--Erlich had no direct relationship with Netcom but dealt solely with Klemesrud's BBS, which used Netcom to gain its Internet access. Every Usenet server has a role in the distribution, so plaintiffs' argument would create unreasonable liability. Where the BBS merely stores and passes along all messages sent by its subscribers and others, the BBS should not be seen as causing these works to be publicly distributed or displayed.

Even accepting the Playboy court's holding, the case is factually distinguishable. Unlike the BBS in that case, Netcom does not maintain an archive of files for its users. Thus, it cannot be said to be "suppl[ying] a product." In contrast to some of its larger competitors, Netcom does not create or control the content of the information available to its subscribers; it merely provides access to the Internet, whose content is controlled by no single entity. Although the Internet consists of many different computers networked together, some of which may contain infringing files, it does not make sense to hold the operator of each computer liable as an infringer merely because his or her computer is linked to a computer with an infringing file. It would be especially inappropriate to hold liable a service that acts more like a conduit, in other words, one that does not itself keep an archive of files for more than a short duration. Finding such a service liable would involve an unreasonably broad construction of public distribution and display rights. No purpose would be served by holding liable those who have no ability to control the information to which their subscribers have access, even though they might be in some sense helping to achieve the Internet's automatic "public distribution" and the users' "public" display of files.

g. Conclusion

The court is not persuaded by plaintiffs' argument that Netcom is directly liable for the copies that are made and stored on its computer. Where the infringing subscriber is clearly directly liable for the same act, it does not make sense to adopt a rule that could lead to the liability of countless parties whose role in the infringement is nothing more than setting up and operating a system that is necessary for the functioning of the Internet. Such a result is unnecessary as there is already a party directly liable for causing the copies to be made. Plaintiffs occasionally claim that they only seek to hold liable a party that refuses to delete infringing files after they have been warned. However, such liability cannot be based on a theory of direct infringement, where knowledge is irrelevant. The court does not find workable a theory of infringement that would hold the entire Internet liable for activities that cannot reasonably be deterred. Billions of bits of data flow through the Internet and are necessarily stored on servers throughout the network and it is thus practically impossible*1373to screen out infringing bits from noninfringing bits. Because the court cannot see any meaningful distinction (without regard to knowledge) between what Netcom did and what every other Usenet server does, the court finds that Netcom cannot be held liable for direct infringement. Cf. IITF Report at 69 (noting uncertainty regarding whether BBS operator should be directly liable for reproduction or distribution of files uploaded by a subscriber). [FN19]

FN19. Despite that uncertainty, the IITF Report recommends a strict liability paradigm for BBS operators. See IITF Report at 122-24. It recommends that Congress not exempt on-line service providers from strict liability because this would prematurely deprive the system of an incentive to get providers to reduce the damage to copyright holders by reducing the chances that users will infringe by educating them, requiring indemnification, purchasing insurance, and, where efficient, developing technological solutions to screening out infringement. Denying strict liability in many cases would leave copyright owners without an adequate remedy since direct infringers may act anonymously or pseudonymously or may not have the resources to pay a judgment. Id.; see also Hardy, supra.

2. Contributory Infringement

[6] Netcom is not free from liability just because it did not directly infringe plaintiffs' works; it may still be liable as a contributory infringer. Although there is no statutory rule of liability for infringement committed by others,

[t]he absence of such express language in the copyright statute does not preclude the imposition of liability for copyright infringement on certain parties who have not themselves engaged in the infringing activity. For vicarious liability is imposed in virtually all areas of the law, and the concept of contributory infringement is merely a species of the broader problem of identifying the circumstances in which it is just to hold one individual accountable for the actions of another.

Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 435, 104 S.Ct. 774, 785, 78 L.Ed.2d 574 (1984) (footnote omitted). Liability for participation in the infringement will be established where the defendant, "with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another." Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2d Cir.1971).

a. Knowledge of Infringing Activity

[7] Plaintiffs insist that Netcom knew that Erlich was infringing their copyrights at least after receiving notice from plaintiffs' counsel indicating that Erlich had posted copies of their works onto a.r.s. through Netcom's system. Despite this knowledge, Netcom continued to allow Erlich to post messages to a.r.s. and left the allegedly infringing messages on its system so that Netcom's subscribers and other Usenet servers could access them. Netcom argues that it did not possess the necessary type of knowledge because (1) it did not know of Erlich's planned infringing activities when it agreed to lease its facilities to Klemesrud, (2) it did not know that Erlich would infringe prior to any of his postings, (3) it is unable to screen out infringing postings before they are made, and (4) its knowledge of the infringing nature of Erlich's postings was too equivocal given the difficulty in assessing whether the registrations were valid and whether Erlich's use was fair. The court will address these arguments in turn.

[8] Netcom cites cases holding that there is no contributory infringement by the lessors of premises that are later used for infringement unless the lessor had knowledge of the intended use at the time of the signing of the lease. See, e.g. Deutsch v. Arnold, 98 F.2d 686, 688 (2d Cir.1938). [FN20] The contribution to the infringement by the defendant in Deutsch was merely to lease use of the premises to the infringer. Here, Netcom not only leases space but also serves as an access provider, which includes the storage and transmission of information necessary to facilitate*1374Erlich's postings to a.r.s. Unlike a landlord, Netcom retains some control over the use of its system. See infra part I.B.3.a. Thus, the relevant time frame for knowledge is not when Netcom entered into an agreement with Klemesrud. It should be when Netcom provided its services to allow Erlich to infringe plaintiffs' copyrights. Cf. Screen Gems-Columbia Music, Inc. v. Mark-Fi Records, Inc., 256 F.Supp. 399, 403 (S.D.N.Y.1966) (analyzing knowledge at time that defendant rendered its particular service). It is undisputed that Netcom did not know that Erlich was infringing before it received notice from plaintiffs. Netcom points out that the alleged instances of infringement occurring on Netcom's system all happened prior to December 29, 1994, the date on which Netcom first received notice of plaintiffs' infringement claim against Erlich. See Pisani Feb. 8, 1995 Decl., ¶ 6 & Exs. (showing latest posting made on December 29, 1994); McShane Feb. 8, 1995 Decl.; FAC ¶¶ 36-38 & Ex. I. Thus, there is no question of fact as to whether Netcom knew or should have known of Erlich's infringing activities that occurred more than 11 days before receipt of the December 28, 1994 letter.

FN20. Adopting such a rule would relieve a BBS of liability for failing to take steps to remove infringing works from its system even after being handed a court's order finding infringement. This would be undesirable and is inconsistent with Netcom's counsel's admission that Netcom would have an obligation to act in such circumstances. Tr. 35:25; see also Tr. 42:18- 42:20.

However, the evidence reveals a question of fact as to whether Netcom knew or should have known that Erlich had infringed plaintiffs' copyrights following receipt of plaintiffs' letter. Because Netcom was arguably participating in Erlich's public distribution of plaintiffs' works, there is a genuine issue as to whether Netcom knew of any infringement by Erlich before it was too late to do anything about it. If plaintiffs can prove the knowledge element, Netcom will be liable for contributory infringement since its failure to simply cancel Erlich's infringing message and thereby stop an infringing copy from being distributed worldwide constitutes substantial participation in Erlich's public distribution of the message. Cf. R.T. Nimmer, THE LAW OF COMPUTER TECHNOLOGY ¶ 15.11B, at S15-42 (2d ed. 1994) (opining that "where information service is less directly involved in the enterprise of creating unauthorized copies, a finding of contributory infringement is not likely").

[9] Netcom argues that its knowledge after receiving notice of Erlich's alleged infringing activities was too equivocal given the difficulty in assessing whether registrations are valid and whether use is fair. Although a mere unsupported allegation of infringement by a copyright owner may not automatically put a defendant on notice of infringing activity, Netcom's position that liability must be unequivocal is unsupportable. While perhaps the typical infringing activities of BBSs will involve copying software, where BBS operators are better equipped to judge infringement, the fact that this involves written works should not distinguish it. Where works contain copyright notices within them, as here, it is difficult to argue that a defendant did not know that the works were copyrighted. To require proof of valid registrations would be impractical and would perhaps take too long to verify, making it impossible for a copyright holder to protect his or her works in some cases, as works are automatically deleted less than two weeks after they are posted. The court is more persuaded by the argument that it is beyond the ability of a BBS operator to quickly and fairly determine when a use is not infringement where there is at least a colorable claim of fair use. Where a BBS operator cannot reasonably verify a claim of infringement, either because of a possible fair use defense, the lack of copyright notices on the copies, or the copyright holder's failure to provide the necessary documentation to show that there is a likely infringement, the operator's lack of knowledge will be found reasonable and there will be no liability for contributory infringement for allowing the continued distribution of the works on its system.

Since Netcom was given notice of an infringement claim before Erlich had completed his infringing activity, there may be a question of fact as to whether Netcom knew or should have known that such activities were infringing. Given the context of a dispute between a former minister and a church he is criticizing, Netcom may be able to show that its lack of knowledge that Erlich was infringing was reasonable. However, Netcom admits that it did not even look at the postings once given notice and that had it looked at the copyright notice and statements*1375regarding authorship, it would have triggered an investigation into whether there was infringement. Kobrin June 7, 1995 Decl., Ex. H, Hoffman Depo. At 125-128. These facts are sufficient to raise a question as to Netcom's knowledge once it received a letter from plaintiffs on December 29, 1994. [FN21]

FN21. The court does not see the relevance of plaintiffs' argument that Netcom's failure to investigate their claims of infringement or take actions against Erlich was a departure from Netcom's normal procedure. A policy and practice of acting to stop postings where there is inadequate knowledge of infringement in no way creates a higher standard of care under the Copyright Act as to subsequent claims of user infringement.

b. Substantial Participation

[10] Where a defendant has knowledge of the primary infringer's infringing activities, it will be liable if it "induces, causes or materially contributes to the infringing conduct of" the primary infringer. Gershwin Publishing, 443 F.2d at 1162. Such participation must be substantial. Apple Computer, Inc. v. Microsoft Corp., 821 F.Supp. 616, 625 (N.D.Cal.1993), aff'd, 35 F.3d 1435 (9th Cir.1994); Demetriades v. Kaufmann, 690 F.Supp. 289, 294 (S.D.N.Y.1988).

[11] Providing a service that allows for the automatic distribution of all Usenet postings, infringing and noninfringing, goes well beyond renting a premises to an infringer. See Fonovisa, Inc. v. Cherry Auction, Inc., 847 F.Supp. 1492, 1496 (E.D.Cal.1994) (finding that renting space at swap meet to known bootleggers not "substantial participation" in the infringers' activities). It is more akin to the radio stations that were found liable for rebroadcasting an infringing broadcast. See, e.g., Select Theatres Corp. v. Ronzoni Macaroni Corp., 59 U.S.P.Q. 288, 291 (S.D.N.Y.1943). Netcom allows Erlich's infringing messages to remain on its system and be further distributed to other Usenet servers worldwide. It does not completely relinquish control over how its system is used, unlike a landlord. Thus, it is fair, assuming Netcom is able to take simple measures to prevent further damage to plaintiffs' copyrighted works, to hold Netcom liable for contributory infringement where Netcom has knowledge of Erlich's infringing postings yet continues to aid in the accomplishment of Erlich's purpose of publicly distributing the postings. Accordingly, plaintiffs do raise a genuine issue of material fact as to their theory of contributory infringement as to the postings made after Netcom was on notice of plaintiffs' infringement claim.

3. Vicarious Liability

[12][13] Even if plaintiffs cannot prove that Netcom is contributorily liable for its participation in the infringing activity, it may still seek to prove vicarious infringement based on Netcom's relationship to Erlich. A defendant is liable for vicarious liability for the actions of a primary infringer where the defendant (1) has the right and ability to control the infringer's acts and (2) receives a direct financial benefit from the infringement. See Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304, 306 (2d Cir.1963). Unlike contributory infringement, knowledge is not an element of vicarious liability. 3 NIMMER ON COPYRIGHT § 12.04[A][1], at 12-70.

a. Right and Ability To Control

[14] The first element of vicarious liability will be met if plaintiffs can show that Netcom has the right and ability to supervise the conduct of its subscribers. Netcom argues that it does not have the right to control its users' postings before they occur. Plaintiffs dispute this and argue that Netcom's terms and conditions, to which its subscribers [FN22] must agree, specify that Netcom reserves the right to take remedial action against subscribers. See, e.g., Francis Depo. at 124-126. Plaintiffs argue that under "netiquette," the informal rules and customs that have developed on the Internet, violation of copyrights by a user is unacceptable and the access provider has a duty take measures to prevent this; where the immediate service *1376 provider fails, the next service provider up the transmission stream must act. See Castleman Decl. ¶¶ 32-43. Further evidence of Netcom's right to restrict infringing activity is its prohibition of copyright infringement and its requirement that its subscribers indemnify it for any damage to third parties. See Kobrin May 5, 1995 Decl., Ex. G. Plaintiffs have thus raised a question of fact as to Netcom's right to control Erlich's use of its services.

FN22. In this case, Netcom is even further removed from Erlich's activities. Erlich was in a contractual relationship only with Klemesrud. Netcom thus dealt directly only with Klemesrud. However, it is not crucial that Erlich does not obtain access directly through Netcom. The issue is Netcom's right and ability to control the use of its system, which it can do indirectly by controlling Klemesrud's use.

Netcom argues that it could not possibly screen messages before they are posted given the speed and volume of the data that goes through its system. Netcom further argues that it has never exercised control over the content of its users' postings. Plaintiffs' expert opines otherwise, stating that with an easy software modification Netcom could identify postings that contain particular words or come from particular individuals. Castleman Decl. ¶¶ 39-43; see also Francis Depo. at 262-63; Hoffman Depo. at 173-74, 178. [FN23] Plaintiffs further dispute Netcom's claim that it could not limit Erlich's access to Usenet without kicking off all 500 subscribers of Klemesrud's BBS. As evidence that Netcom has in fact exercised its ability to police its users' conduct, plaintiffs cite evidence that Netcom has acted to suspend subscribers' accounts on over one thousand occasions. See Ex. J (listing suspensions of subscribers by Netcom for commercial advertising, posting obscene materials, and off-topic postings). Further evidence shows that Netcom can delete specific postings. See Tr. 9:16. Whether such sanctions occurred before or after the abusive conduct is not material to whether Netcom can exercise control. The court thus finds that plaintiffs have raised a genuine issue of fact as to whether Netcom has the right and ability to exercise control over the activities of its subscribers, and of Erlich in particular.

FN23. However, plaintiffs submit no evidence indicating Netcom, or anyone, could design software that could determine whether a posting is infringing.

b. Direct Financial Benefit

[15] Plaintiffs must further prove that Netcom receives a direct financial benefit from the infringing activities of its users. For example, a landlord who has the right and ability to supervise the tenant's activities is vicariously liable for the infringements of the tenant where the rental amount is proportional to the proceeds of the tenant's sales. Shapiro, Bernstein, 316 F.2d at 306. However, where a defendant rents space or services on a fixed rental fee that does not depend on the nature of the activity of the lessee, courts usually find no vicarious liability because there is no direct financial benefit from the infringement. See, e.g., Roy Export Co. v. Trustees of Columbia University, 344 F.Supp. 1350, 1353 (S.D.N.Y.1972) (finding no vicarious liability of university because no financial benefit from allowing screening of bootlegged films); Fonovisa, 847 F.Supp. at 1496 (finding swap meet operators did not financially benefit from fixed fee); see also Kelly Tickle, Comment, The Vicarious Liability of Electronic Bulletin Board Operators for the Copyright Infringement Occurring on Their Bulletin Boards, 80 IOWA L.REV. 391, 415 (1995) (arguing that BBS operators "lease cyberspace" and should thus be treated like landlords, who are not liable for infringement that occurs on their premises).

Plaintiffs argue that courts will find a financial benefit despite fixed fees. In Polygram International Publishing, Inc. v. Nevada/TIG, Inc., 855 F.Supp. 1314, 1330-33 (D.Mass.1994), the court found a trade show organizer vicariously liable for the infringing performance of an exhibitor because, although the infringement did not affect the fixed rental fee received by the organizers, the organizers benefitted from the performances, which helped make the show a financial success. But see Artists Music, Inc. v. Reed Publishing, Inc., 31 U.S.P.Q.2d 1623, 1994 WL 191643, at *6 (S.D.N.Y.1994) (finding no vicarious liability for trade show organizers where revenues not increased because of infringing music performed by exhibitors). Plaintiffs cite two other cases where, despite fixed fees, defendants received financial benefits from allowing groups to perform infringing works over the radio without having to get an ASCAP license, which minimized the defendants' expenses. See Boz Scaggs Music v. KND Corp, 491 F.Supp. 908, 913 (D.Conn.1980); Realsongs v. Gulf Broadcasting *1377 Corp., 824 F.Supp. 89, 92 (M.D.La.1993). Plaintiffs' cases are factually distinguishable. Plaintiffs cannot provide any evidence of a direct financial benefit received by Netcom from Erlich's infringing postings. Unlike Shapiro, Bernstein, and like Fonovisa, Netcom receives a fixed fee. There is no evidence that infringement by Erlich, or any other user of Netcom's services, in any way enhances the value of Netcom's services to subscribers or attracts new subscribers. Plaintiffs argue, however, that Netcom somehow derives a benefit from its purported "policy of refusing to take enforcement actions against its subscribers and others who transmit infringing messages over its computer networks." Opp'n at 18. Plaintiffs point to Netcom's advertisements that, compared to competitors like CompuServe and America Online, Netcom provides easy, regulation-free Internet access. Plaintiffs assert that Netcom's policy attracts copyright infringers to its system, resulting in a direct financial benefit. The court is not convinced that such an argument, if true, would constitute a direct financial benefit to Netcom from Erlich's infringing activities. See Fonovisa, 847 F.Supp. at 1496 (finding no direct financial benefit despite argument that lessees included many vendors selling counterfeit goods and that clientele sought "bargain basement prices"). Further, plaintiffs' argument is not supported by probative evidence. The only "evidence" plaintiffs cite for their supposition is the declaration of their counsel, Elliot Abelson, who states that

[o]n April 7, 1995, in a conversation regarding Netcom's position related to this case, Randolf Rice, attorney for Netcom, informed me that Netcom's executives are happy about the publicity it is receiving in the press as a result of this case. Mr. Rice also told me that Netcom was concerned that it would lose business if it took action against Erlich or Klemesrud in connection with Erlich's infringements.

Abelson Decl. ¶ 2. Netcom objects to this declaration as hearsay and as inadmissible evidence of statements made in compromise negotiations. Fed.R.Ev. 801, 408. Whether or not this declaration is admissible, it does not support plaintiffs' argument that Netcom either has a policy of not enforcing violations of copyright laws by its subscribers or, assuming such a policy exists, that Netcom's policy directly financially benefits Netcom, such as by attracting new subscribers. Because plaintiffs have failed to raise a question of fact on this vital element, their claim of vicarious liability fails. See Roy Export, 344 F.Supp. at 1353.

4. First Amendment Argument

[16] Netcom argues that plaintiffs' theory of liability contravenes the first amendment, as it would chill the use of the Internet because every access provider or user would be subject to liability when a user posts an infringing work to a Usenet newsgroup. While the court agrees that an overbroad injunction might implicate the First Amendment, see In re Capital Cities/ABC, Inc., 918 F.2d 140, 144 (11th Cir.1990), [FN24] imposing liability for infringement where it is otherwise appropriate does not necessarily raise a First Amendment issue. The copyright concepts of the idea/expression dichotomy and the fair use defense balance the important First Amendment rights with the constitutional authority for "promot[ing] the progress of science and useful arts," U.S. Const. art. I, § 8, cl. 8; 1 Nimmer on Copyright § 1.10[B], at 1-71 to -83. Netcom argues that liability here would force Usenet servers to perform the impossible--screening all the information that comes through their systems. However, the court is not convinced that Usenet servers are directly liable for causing a copy to be made, and absent evidence of knowledge and participation or control and direct profit, they will not be contributorily or vicariously liable. If Usenet servers were responsible for screening all messages coming through their systems, this could have a serious chilling effect on what some say may turn out to be the best public forum for free speech yet*1378devised. See Jerry Berman & Daniel J. Weitzner, Abundance and User Control: Renewing the Democratic Heart of the First Amendment in the Age of Interactive Media, 104 Yale L.J. 1619, 1624 (1995) (praising decentralized networks for opening access to all with no entity stifling independent sources of speech); Rose, supra, at 4. [FN25] Finally, Netcom admits that its First Amendment argument is merely a consideration in the fair use argument, which the court will now address. See Reply at 24.

FN24. For example, plaintiffs' demand that the court order Netcom to terminate Klemesrud's BBS's access to the Internet, thus depriving all 500 of his subscribers, would be overbroad, as it would unnecessarily keep hundreds of users, against whom there are no allegations of copyright infringement, from accessing a means of speech. The overbroadness is even more evident if, as plaintiffs contend, there is a way to restrict only Erlich's access to a.r.s.

FN25. Netcom additionally argues that plaintiffs' theory of liability would have a chilling effect on users, who would be liable for merely browsing infringing works. Browsing technically causes an infringing copy of the digital information to be made in the screen memory. MAI holds that such a copy is fixed even when information is temporarily placed in RAM, such as the screen RAM. The temporary copying involved in browsing is only necessary because humans cannot otherwise perceive digital information. It is the functional equivalent of reading, which does not implicate the copyright laws and may be done by anyone in a library without the permission of the copyright owner. However, it can be argued that the effects of digital browsing are different because millions can browse a single copy of a work in cyberspace, while only one can read a library's copy at a time.

Absent a commercial or profit-depriving use, digital browsing is probably a fair use; there could hardly be a market for licensing the temporary copying of digital works onto computer screens to allow browsing. Unless such a use is commercial, such as where someone reads a copyrighted work online and therefore decides not to purchase a copy from the copyright owner, fair use is likely. Until reading a work online becomes as easy and convenient as reading a paperback, copyright owners do not have much to fear from digital browsing and there will not likely be much market effect.

Additionally, unless a user has reason to know, such as from the title of a message, that the message contains copyrighted materials, the browser will be protected by the innocent infringer doctrine, which allows the court to award no damages in appropriate circumstances. In any event, users should hardly worry about a finding of direct infringement; it seems highly unlikely from a practical matter that a copyright owner could prove such infringement or would want to sue such an individual.

5. Fair Use Defense

[17] Assuming plaintiffs can prove a violation of one of the exclusive rights guaranteed in section 106, there is no infringement if the defendant's use is fair under section 108. The proper focus here is on whether Netcom's actions qualify as fair use, not on whether Erlich himself engaged in fair use; the court has already found that Erlich was not likely entitled to his own fair use defense, as his postings contained large portions of plaintiffs' published and unpublished works quoted verbatim with little added commentary.

Although the author has the exclusive rights to reproduce, publicly distribute, and publicly display a copyrighted work under section 106, these rights are limited by the defense of "fair use." 17 U.S.C. § 107. The defense "permits and requires courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that law is designed to foster." Campbell v. Acuff-Rose Music, Inc., --- U.S. ----, ----, 114 S.Ct. 1164, 1170, 127 L.Ed.2d 500 (1994) (citation omitted). Congress has set out four nonexclusive factors to be considered in determining the availability of the fair use defense:

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

17 U.S.C. § 107. The fair use doctrine calls for a case-by-case analysis. Campbell, 510 U.S. at ----, 114 S.Ct. at 1170. All of the factors "are to be explored, and the results weighed together, in light of the purposes of copyright." Id. at ---- - ----, 114 S.Ct. at 1170-71.

a. First Factor: Purpose and Character of the Use

The first statutory factor looks to the purpose and character of the defendant's use. Netcom's use of plaintiffs' works is to carry out its commercial function as an Internet access provider. Such a use, regardless of *1379 the underlying uses made by Netcom's subscribers, is clearly commercial. Netcom's use, though commercial, also benefits the public in allowing for the functioning of the Internet and the dissemination of other creative works, a goal of the Copyright Act. See Sega v. Accolade, 977 F.2d 1510, 1523 (9th Cir.1992) (holding that intermediate copying to accomplish reverse engineering of software fair use despite commercial nature of activity; considering public benefit of use). The Campbell Court emphasized that a commercial use does not dictate against a finding of fair use, as most of the uses listed in the statute are "generally conducted for profit in this country." 510 U.S. at ----, 114 S.Ct. at 1174. Although Netcom gains financially from its distribution of messages to the Internet, its financial incentive is unrelated to the infringing activity and the defendant receives no direct financial benefit from the acts of infringement. Therefore, the commercial nature of the defendant's activity should not be dispositive. Moreover, there is no easy way for a defendant like Netcom to secure a license for carrying every possible type of copyrighted work onto the Internet. Thus, it should not be seen as "profit[ing] from the exploitation of the copyrighted work without paying the customary prices." Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 562, 105 S.Ct. 2218, 2231, 85 L.Ed.2d 588 (1985). It is undisputed that, unlike the defendants in Playboy and Sega, Netcom does not directly gain anything from the content of the information available to its subscribers on the Internet. See supra part I.B.3.b. Because it does not itself provide the files or solicit infringing works, its purpose is different from that of the defendants in Playboy and Sega. Because Netcom's use of copyrighted materials served a completely different function than that of the plaintiffs, this factor weighs in Netcom's favor, see Hustler Magazine, Inc. v. Moral Majority, Inc., 606 F.Supp. 1526, 1535 (C.D.Cal.1985), aff'd, 796 F.2d 1148 (9th Cir.1986), notwithstanding the otherwise commercial nature of Netcom's use.

b. Second Factor: Nature of the Copyrighted Work

The second factor focuses on two different aspects of the copyrighted work: whether it is published or unpublished and whether it is informational or creative. [FN26] Plaintiffs rely on the fact that some of the works transmitted by Netcom were unpublished and some were arguably highly creative and original. However, because Netcom's use of the works was merely to facilitate their posting to the Usenet, which is an entirely different purpose than plaintiffs' use (or, for that matter, Erlich's use), the precise nature of those works is not important to the fair use determination. See Campbell, 510 U.S. at ----, 114 S.Ct. at 1175 (finding creative nature of work copied irrelevant where copying for purposes of parody); Hustler Magazine, 606 F.Supp. at 1537; 3 NIMMER ON COPYRIGHT § 13.05[A][2][a], at 13-177 ("It is sometimes necessary, in calibrating the fair use defense, to advert to the defendant's usage simultaneously with the nature of the plaintiff's work.").

FN26. A recent report noted that a third aspect of the nature of the work may be relevant: whether it is in digital or analog form. IITF Report at 78. Although the copyright laws were developed before digital works existed, they have certainly evolved to include such works, and this court can see no reason why works should deserve less protection because they are in digital form, especially where, as here, t